2003 Publication 559 - IRS tax forms · 2012. 7. 16. · Checklist of Forms and Due Dates .....39...

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Publication 559 ContentsCat. No. 15107u

Important Reminders . . . . . . . . . . . . . . 2Departmentof the Introduction . . . . . . . . . . . . . . . . . . . . . 2Survivors,Treasury

Personal Representative . . . . . . . . . . . . 2InternalDuties . . . . . . . . . . . . . . . . . . . . . . 2Revenue Executors, and Fees Received by PersonalService

Representatives . . . . . . . . . . . . . 3Administrators Final Return for Decedent . . . . . . . . . . . 3Filing Requirements . . . . . . . . . . . . . 4Income To Include . . . . . . . . . . . . . . 4Exemptions and Deductions . . . . . . . . 5Credits, Other Taxes, andFor use in preparing

Payments . . . . . . . . . . . . . . . . . 6Name, Address, and Signature . . . . . . 72003 Returns When and Where To File . . . . . . . . . . 7Tax Forgiveness for Deaths Due

to Military or Terrorist Actions . . . . 7Filing Reminders . . . . . . . . . . . . . . . 8

Other Tax Information . . . . . . . . . . . . . 8Tax Benefits for Survivors . . . . . . . . . 8Income in Respect of a Decedent . . . . 8Deductions in Respect of a

Decedent . . . . . . . . . . . . . . . . . 11Estate Tax Deduction . . . . . . . . . . . . 11Gifts, Insurance, and Inheritances . . . . 12Other Items of Income . . . . . . . . . . . 14

Income Tax Return of anEstate—Form 1041 . . . . . . . . . . . . 14Filing Requirements . . . . . . . . . . . . . 14Income To Include . . . . . . . . . . . . . . 15Exemption and Deductions . . . . . . . . 16Credits, Tax, and Payments . . . . . . . . 19Name, Address, and Signature . . . . . . 19When and Where To File . . . . . . . . . . 19

Distributions to BeneficiariesFrom an Estate . . . . . . . . . . . . . . . . 20Income That Must Be Distributed

Currently . . . . . . . . . . . . . . . . . . 20Other Amounts Distributed . . . . . . . . . 20Discharge of a Legal Obligation . . . . . 20Character of Distributions . . . . . . . . . 21How and When To Report . . . . . . . . . 21Bequest . . . . . . . . . . . . . . . . . . . . . 21Termination of Estate . . . . . . . . . . . . 22

Form 706 . . . . . . . . . . . . . . . . . . . . . . . 23

Comprehensive Example . . . . . . . . . . . 23Final Return for Decedent . . . . . . . . . 24Income Tax Return of an

Estate—Form 1041 . . . . . . . . . . 24

Checklist of Forms and Due Dates . . . . . 39

Worksheet To Reconcile AmountsReported . . . . . . . . . . . . . . . . . . . . 40

How To Get Tax Help . . . . . . . . . . . . . . 41

Index . . . . . . . . . . . . . . . . . . . . . . . . . . 42Get forms and other informationfaster and easier by:

Internet • www.irs.gov or FTP • ftp.irs.gov

FAX • 703–368–9694 (from your fax machine)



Consistent treatment of estate and trust Useful Itemsitems. Beneficiaries must generally treat es- You may want to see:Important Reminderstate items the same way on their individual re-turns as they are treated on the estate’s return. PublicationCombat zone. Special rules apply if a mem-

ber of the Armed Forces of the United States ❏ 950 Introduction to Estate and GiftIndividual taxpayer identification numberdies while in active service in a combat zone or Taxes(ITIN). The IRS will issue an ITIN to a nonresi-from wounds, disease, or injury incurred in a dent or resident alien who does not have and is ❏ 3920 Tax Relief for Victims of Terroristcombat zone. See Tax Forgiveness for Deaths not eligible to get a social security number AttacksDue to Military or Terrorist Actions, later. For

(SSN). To apply for an ITIN, file Form W–7,other tax information for members of the Armed

Application for IRS Individual Taxpayer Identifi- Form (and Instructions)Forces, see Publication 3, Armed Forces’ Taxcation Number, with the IRS. It usually takes 4 toGuide. ❏ 1040 U.S. Individual Income Tax Return6 weeks to get an ITIN.

❏ 1041 U.S. Income Tax Return for EstatesBenefits for public safety officers’ survivors. An ITIN is for tax use only. It does not entitleand TrustsA survivor annuity received by the spouse, for- the holder to social security benefits or change

mer spouse, or child of a public safety officer the holder’s employment or immigration status ❏ 706 United States Estate (andkilled in the line of duty generally will be ex- under U.S. law. Generation-Skipping Transfer) Taxcluded from the recipient’s income regardless of Returnthe date of the officer’s death. For more informa- Photographs of missing children. The Inter-

❏ 1310 Statement of Person Claimingtion, see Public safety officers, later. nal Revenue Service is a proud partner with theRefund Due a Deceased TaxpayerNational Center for Missing and Exploited Chil-

Rollovers by surviving spouses. An dren. Photographs of missing children selected See How To Get Tax Help near the end ofemployee’s surviving spouse who receives anby the Center may appear in this publication on this publication for information about gettingeligible rollover distribution may roll it over intopages that would otherwise be blank. You can publications and forms.an eligible retirement plan, including an IRA, ahelp bring these children home by looking at thequalified plan, a section 403(b) annuity, or aphotographs and calling 1–800–THE–LOSTsection 457 plan.(1–800–843–5678) if you recognize a child.

Estate tax return. Generally, if the decedent Personaldied during 2003, an estate tax return (Form706) must be filed if the gross estate is more Representativethan $1,000,000. Introduction

A personal representative of an estate is anEstate tax repeal. The estate tax is repealed This publication is designed to help those in executor, administrator, or anyone who is infor decedents dying after 2009. charge of the property (estate) of an individual charge of the decedent’s property. Generally, an

who has died (decedent). It shows them how to executor (or executrix) is named in aSpecified terrorist victim. The Victims ofcomplete and file federal income tax returns and decedent’s will to administer the estate and dis-Terrorism Tax Relief Act of 2001 is explained inpoints out their responsibility to pay any taxes tribute properties as the decedent has directed.Publication 3920, Tax Relief for Victims of Ter-due. An administrator (or administratrix) is usuallyrorist Attacks. Under the Act, the federal income

appointed by the court if no will exists, if noA comprehensive example, using tax forms,tax liability of those killed in the following attacksexecutor was named in the will, or if the named(specified terrorist victim) is forgiven for certain is included near the end of this publication. Alsoexecutor cannot or will not serve.tax years. included at the end of this publication are the

In general, an executor and an administratorfollowing items.• The April 19, 1995, terrorist attack on the perform the same duties and have the sameAlfred P. Murrah Federal Building responsibilities.• A checklist of the forms you may need and(Oklahoma City). their due dates. For estate tax purposes, if there is no execu-

tor or administrator appointed, qualified, and• The September 11, 2001, terrorist attacks. • A worksheet to reconcile amounts re-acting within the United States, the term execu-ported in the decedent’s name on informa-• The terrorist attacks involving anthrax oc- tor includes anyone in actual or constructivetion Forms W–2, 1099– INT, 1099–DIV,curring after September 10, 2001, and possession of any property of the decedent. It

before January 1, 2002. etc. The worksheet will help you correctly includes, among others, the decedent’s agentsdetermine the income to report on the and representatives; safe-deposit companies,

The Act also exempts from federal income tax decedent’s final return and on the return warehouse companies, and other custodians ofthe following types of income. for either the estate or a beneficiary. property in this country; brokers holding securi-

ties of the decedent as collateral; and the debt-• Qualified disaster relief payments madeors of the decedent who are in this country.after September 10, 2001, to cover per- Comments and suggestions. We welcome

sonal, family, living, or funeral expenses your comments about this publication and your A personal representative for a decedent’sincurred because of a terrorist attack. suggestions for future editions. estate can be an executor, administrator, or any-

one in charge of the decedent’s property, so theYou can e-mail us at *[email protected].• Certain disability payments received in taxterm personal representative will be usedPlease put “Publications Comment” on the sub-years ending after September 10, 2001,throughout this publication.for injuries sustained in a terrorist attack. ject line.

You can write to us at the following address:• Certain death benefits paid by an em- Dutiesployer to the survivor of an employee be-cause the employee died as a result of a Internal Revenue Service The primary duties of a personal representativeterrorist attack. are to collect all the decedent’s assets, pay theIndividual Forms and Publications Branch

creditors, and distribute the remaining assets toSE:W:CAR:MP:T:I• Payments from the September 11th Victimthe heirs or other beneficiaries.1111 Constitution Ave. NWCompensation Fund of 2001.

Washington, DC 20224 The personal representative also must per-form the following duties.The Act also reduces the estate tax of individ-

uals who die as a result of a terrorist attack. • Apply for an employer identification num-We respond to many letters by telephone.Astronauts. Recent legislation extendedber (EIN) for the estate.Therefore, it would be helpful if you would in-the exclusion for death payments to astronauts

clude your daytime phone number, including thedying in the line of duty after 2002. See Publica- • File any income tax return and the estatetion 553, Highlights of 2003 Tax Changes. area code, in your correspondence. tax return when due.

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• Pay the tax determined up to the date of for this purpose. The instructions and other re- decedent’s income and gift taxes. The requestdischarge from duties. quirements are given on the back of the form. must be made after the returns for those taxes

You should file the written notice (or Form are filed. It must clearly indicate that the requestOther duties of the personal representative in56) as soon as all of the necessary information is for discharge from personal liability under sec-federal tax matters are discussed in other sec-(including the EIN) is available. It notifies the IRS tion 6905 of the Internal Revenue Code. For thistions of this publication. If any beneficiary is athat, as the fiduciary, you are assuming the purpose, an executor is an executor or adminis-nonresident alien, see Publication 515, With-powers, rights, duties, and privileges of the de- trator that is appointed, qualified, and actingholding of Tax on Nonresident Aliens and For-cedent, and allows the IRS to mail to you all tax within the United States.eign Entities, for information on the personalnotices concerning the person (or estate) you Within 9 months after receipt of the request,representative’s duties as a withholding agent.represent. The notice remains in effect until you the IRS will notify the executor of the amount of

Penalty. There is a penalty for failure to file notify the appropriate IRS office that your rela- taxes due. If this amount is paid, the executora tax return when due unless the failure is due to tionship to the estate has terminated. will be discharged from personal liability for anyreasonable cause. Reliance on an agent (attor- future deficiencies. If the IRS has not notified theTermination notice. When you are relievedney, accountant, etc.) is not reasonable cause executor, he or she will be discharged fromof your responsibilities as personal representa-for late filing. It is the personal representative’s personal liability at the end of the 9-month pe-tive, you must advise the IRS office where youduty to file the returns for the decedent and the riod.filed the written notice (or Form 56) either thatestate when due.

the estate has been terminated or that your Even if the executor is discharged fromsuccessor has been appointed. Use Form 56 for personal liability, the IRS will still beIdentification number. The first action youthe termination notice by completing the appro- able to assess tax deficiencies againstshould take if you are the personal representa- CAUTION

!priate part on the form. If another person has the executor to the extent that he or she still hastive for the decedent is to apply for an employerbeen appointed to succeed you as the personal any of the decedent’s property.identification number (EIN) for the estate. Yourepresentative, you should give the name andshould apply for this number as soon as possibleaddress of your successor.because you need to enter it on returns, state- Insolvent estate. Generally, if a decedent’s

ments, and other documents that you file con- estate is insufficient to pay all the decedent’sRequest for prompt assessment (charge) ofcerning the estate. You also must give the tax. The IRS ordinarily has 3 years from the debts, the debts due the United States must benumber to payers of interest and dividends and date an income tax return is filed, or its due date, paid first. Both the decedent’s federal incomeother payers who must file a return concerning whichever is later, to charge any additional tax tax liabilities at the time of death and the estate’sthe estate. that is due. However, as a personal representa- income tax liability are debts due the United

You can get an EIN by applying on line at tive you may request a prompt assessment of States. The personal representative of an insol-www.irs.gov/businesses or by calling tax after the return has been filed. This reduces vent estate is personally responsible for any tax1–800–829–4933. You can also apply using the time for making the assessment to 18 liability of the decedent or of the estate if he orForm SS–4, Application for Employer Identifi- months from the date the written request for she had notice of such tax obligations or hadcation Number. Generally, if you apply by mail, it prompt assessment was received. This request failed to exercise due care in determining if suchtakes about 4 weeks to get your EIN. See the can be made for any income tax return of the obligations existed before distribution of theform instructions for other ways to apply. decedent and for the income tax return of the estate’s assets and before being discharged

Payers of interest and dividends report decedent’s estate. This may permit a quicker from duties. The extent of such personal respon-amounts on Forms 1099 using the identification settlement of the tax liability of the estate and an sibility is the amount of any other paymentsnumber of the person to whom the account is earlier final distribution of the assets to the bene- made before paying the debts due the Unitedpayable. After a decedent’s death, the Forms ficiaries. States, except where such other debt paid has1099 must reflect the identification number of priority over the debts due the United States.Form 4810. Form 4810, Request for Promptthe estate or beneficiary to whom the amounts The income tax liabilities need not be formallyAssessment Under Internal Revenue Code Sec-are payable. As the personal representative assessed for the personal representative to betion 6501(d), can be used for making this re-handling the estate, you must furnish this identi- liable if he or she was aware or should havequest. It must be filed separately from any otherfication number to the payer. For example, if been aware of their existence.document. The request should be filed with theinterest is payable to the estate, the estate’s EIN

IRS office where the return was filed. If Formnumber must be provided to the payer and used Fees Received by4810 is not used, you must clearly indicate thatto report the interest on Form 1099– INT, Inter-

you are making a request for prompt assess- Personal Representativesest Income. If the interest is payable to a surviv-ment under section 6501(d) of the Internal Rev-

ing joint owner, the survivor’s identificationenue Code. You must identify the type of tax and All personal representatives must include in

number must be provided to the payer and usedthe tax period for which the prompt assessment their gross income fees paid to them from an

to report the interest.is requested. estate. If paid to a professional executor or ad-

The deceased individual’s identifying num- As the personal representative for the ministrator, self-employment tax also applies tober must not be used to file an individual tax decedent’s estate, you are responsible for any such fees. For a nonprofessional executor orreturn after the decedent’s final tax return. It also additional taxes that may be due. You can re- administrator (a person serving in such capacitymust not be used to make estimated tax pay- quest prompt assessment of any of the in an isolated instance, such as a friend or rela-ments for a tax year after the year of death. decedent’s taxes (other than federal estate tive of the decedent), self-employment tax only

taxes) for any years for which the statutory pe- applies if a trade or business is included in thePenalty. If you do not include the EIN onriod for assessment is open. This applies even estate’s assets, the executor actively partici-any return, statement, or other document, youthough the returns were filed before the pates in the business, and the fees are related toare liable for a penalty for each failure, unlessdecedent’s death. operation of the business.you can show reasonable cause. You also are

liable for a penalty if you do not give the EIN to Failure to report income. If you or the de-another person, or if you do not include the cedent failed to report substantial amounts oftaxpayer identification number of another per- gross income (more than 25% of the gross in-son on a return, statement, or other document. Final Returncome reported on the return) or filed a false or

fraudulent return, your request for prompt as-Notice of fiduciary relationship. The term for Decedentsessment will not shorten the period duringfiduciary means any person acting for another which the IRS may assess the additional tax.person. It applies to persons who have positions The personal representative (defined earlier)However, such a request may relieve you ofof trust on behalf of others. A personal represen- must file the final income tax return (Form 1040)personal liability for the tax if you did not havetative for a decedent’s estate is a fiduciary. of the decedent for the year of death and anyknowledge of the unpaid tax.

returns not filed for preceding years. A survivingIf you are appointed to act in any fiduciaryspouse, under certain circumstances, may havecapacity for another, you must file a written no- Request for discharge from personal liabilityto file the returns for the decedent. See Jointtice with the IRS stating this. Form 56, Notice for tax. An executor can make a written re-Return, later.Concerning Fiduciary Relationship, can be used quest for discharge from personal liability for a

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Return for preceding year. If an individual A new check will be issued in your name and For more information about accountingmethods, see Publication 538, Accounting Peri-died after the close of the tax year, but before mailed to you.ods and Methods.the return for that year was filed, the return for

the year just closed will not be the final return.The return for that year will be a regular return Nonresident Alien

Under the Cash Methodand the personal representative must file it.If the decedent was a nonresident alien who

If the decedent accounted for income under theExample. Samantha Smith died on March would have had to file Form 1040NR, U.S. Non-cash method, only those items actually or con-21, 2003, before filing her 2002 tax return. Her resident Alien Income Tax Return, you must filestructively received before death are included inpersonal representative must file her 2002 re- that form for the decedent’s final tax year. Seethe final return.turn by April 15, 2003. Her final tax return is due the instructions for Form 1040NR for the filing

April 15, 2004. requirements, due date, and where to file. Constructive receipt of income. Interestfrom coupons on the decedent’s bonds was con-

Filing Requirements structively received by the decedent if the cou-Joint Return pons matured in the decedent’s final tax year,

The gross income, age, and filing status of a but had not been cashed. Include the interest inGenerally, the personal representative and thedecedent generally determine whether a return the final return.surviving spouse can file a joint return for themust be filed. Gross income usually is all income Generally, a dividend was constructively re-decedent and the surviving spouse. However,received by an individual in the form of money, ceived if it was available for use by the decedentthe surviving spouse alone can file the jointgoods, property, and services that is not tax-ex- without restriction. If the corporation customarilyreturn if no personal representative has beenempt. It includes gross receipts from self-em- mailed its dividend checks, the dividend wasappointed before the due date for filing the finalployment, but if the business involves includible when received. If the individual diedjoint return for the year of death. This also ap-manufacturing, merchandising, or mining, sub- between the time the dividend was declared andplies to the return for the preceding year if thetract any cost of goods sold. In general, filing the time it was received in the mail, the decedentdecedent died after the close of the precedingstatus depends on whether the decedent was did not constructively receive it before death. Dotax year and before filing the return for that year.considered single or married at the time of not include the dividend in the final return.The income of the decedent that was includibledeath. See the income tax return instructions oron his or her return for the year up to the date ofPublication 501, Exemptions, Standard Deduc-death (see Income To Include, later) and thetion, and Filing Information. Under an Accrual Methodincome of the surviving spouse for the entire

Generally, under an accrual method of account-year must be included in the final joint return.ing, income is reported when earned.Refund A final joint return with the decedent cannot

If the decedent used an accrual method, onlybe filed if the surviving spouse remarried beforeA return should be filed to obtain a refund if tax the income items normally accrued before deaththe end of the year of the decedent’s death. Thewas withheld from salaries, wages, pensions, or are included in the final return.filing status of the decedent in this instance isannuities, or if estimated tax was paid, even if a married filing a separate return.return is not required to be filed. Also, the dece-

For information about tax benefits to which a Partnership Incomedent may be entitled to other credits that result insurviving spouse may be entitled, see Tax Ben-a refund. These advance payments of tax andefits for Survivors, later, under Other Tax Infor- The death of a partner closes the partnership’scredits are discussed later under Credits, Othermation. tax year for that partner. Generally, it does notTaxes, and Payments.

close the partnership’s tax year for the remain-ing partners. The decedent’s distributive sharePersonal representative may revoke joint re-Form 1310. Generally, a person who is filing aof partnership items must be figured as if theturn election. A court-appointed personalreturn for a decedent and claiming a refund mustpartnership’s tax year ended on the date therepresentative may revoke an election to file afile Form 1310 with the return. However, if thepartner died. To avoid an interim closing of thejoint return that was previously made by theperson claiming the refund is a surviving spousepartnership books, the partners can agree tosurviving spouse alone. This is done by filing afiling a joint return with the decedent, or aestimate the decedent’s distributive share byseparate return for the decedent within one yearcourt-appointed or certified personal represen-prorating the amounts the partner would havefrom the due date of the return (including anytative filing an original return for the decedent,included for the entire partnership tax year.extensions). The joint return made by the surviv-Form 1310 is not needed. The personal repre-

On the decedent’s final return, include theing spouse will then be regarded as the separatesentative must attach to the return a copy of the decedent’s distributive share of partnershipreturn of that spouse by excluding thecourt certificate showing that he or she was items for the following periods.decedent’s items and refiguring the tax liability.appointed the personal representative.If the personal representative is filing a claim Relief from joint liability. In some cases, 1) The partnership’s tax year that ended

for refund on Form 1040X, Amended U.S. Indi- one spouse may be relieved of joint liability for within or with the decedent’s final tax yearvidual Income Tax Return, or Form 843, Claim (the year ending on the date of death).tax, interest, and penalties on a joint return forfor Refund and Request for Abatement, and the items of the other spouse that were incorrectly 2) The period, if any, from the end of thecourt certificate has already been filed with the reported on the joint return. If the decedent qual- partnership’s tax year in (1) to theIRS, attach Form 1310 and write “Certificate ified for this relief while alive, the personal repre- decedent’s date of death.Previously Filed” at the bottom of the form. sentative can pursue an existing request, or file

a request, for relief from joint liability. For infor-Example. Mr. Green died before filing his Example. Mary Smith was a partner in XYZmation on requesting this relief, see Publication

tax return. You were appointed the personal partnership and reported her income on a tax971, Innocent Spouse Relief.representative for Mr. Green’s estate, and you year ending December 31. The partnership usesfile his Form 1040 showing a refund due. You do a tax year ending June 30. Mary died August 31,Income To Includenot need Form 1310 to claim the refund if you 2003, and her estate established its tax yearattach a copy of the court certificate showing you through August 31.The decedent’s income includible on the finalwere appointed the personal representative. The distributive share of partnership itemsreturn is generally determined as if the person

based on the decedent’s partnership interest iswere still alive except that the taxable period isIf you are a surviving spouse and youreported as follows.usually shorter because it ends on the date ofreceive a tax refund check in both your

death. The method of accounting regularly usedname and your deceased spouse’s • Final Return for the Decedent — JanuaryTIP

by the decedent before death also determinesname, you can have the check reissued in your 1 through August 31, 2003, includes XYZthe income includible on the final return. Thisname alone. Return the joint-name check and a partnership items from (a) the partnershipsection explains how some types of income arecompleted Form 1310 to your local IRS office or tax year ending June 30, 2003, and (b) the

the service center where you mailed your return. reported on the final return. partnership tax year beginning July 1,

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2003, and ending August 31, 2003 (the that represents income in respect of the dece- individual with special needs. This includes andate of death). dent, report the interest as shown next under individual who, because of a physical, mental, or

How to report. emotional condition (including a learning disabil-• Income Tax Return of the Estate — Sep-ity), requires additional time to complete his orSee U.S. savings bonds acquired from dece-tember 1, 2003, through August 31, 2004,her education.dent under Income in Respect of the Decedent,includes XYZ partnership items for the pe-

For more information on Coverdell ESAs,later, for information on savings bond interestriod September 1, 2003, through June 30,see Publication 970, Tax Benefits for Education.that may have to be reported on the final return.2004.

How to report. If you are preparing theAccelerated Death BenefitsS Corporation Income decedent’s final return and you have received a

Form 1099– INT for the decedent that includesAccelerated death benefits are amounts re-If the decedent was a shareholder in an S corpo- amounts belonging to the decedent and to an-ceived under a life insurance contract before theration, include on the final return the decedent’s other recipient (the decedent’s estate or anotherdeath of the insured individual. These benefitsshare of the S corporation’s items of income, beneficiary), report the total interest shown onalso include amounts received on the sale orloss, deduction, and credit for the following peri- Form 1099– INT on Schedule 1 (Form 1040A) orassignment of the contract to a viatical settle-ods. on Schedule B (Form 1040). Next, enter a sub-ment provider.total of the interest shown on Forms 1099, and

1) The corporation’s tax year that ended Generally, if the decedent received acceler-the interest reportable from other sources forwithin or with the decedent’s final tax year ated death benefits either on his or her own lifewhich you did not receive Forms 1099. Then,(the year ending on the date of death). or on the life of another person, those benefitsshow any interest (including any interest you

are not included in the decedent’s income. Thisreceive as a nominee) belonging to another re-2) The period, if any, from the end of theexclusion applies only if the insured was a termi-cipient separately and subtract it from the sub-corporation’s tax year in (1) to thenally or chronically ill individual. For more infor-total. Identify the amount of this adjustment asdecedent’s date of death.mation, see the discussion under Gifts,“Nominee Distribution” or other appropriate des-Insurance, and Inheritances under Other Taxignation.Information, later.Report dividend income for which you re-Self-Employment Income

ceived a Form 1099–DIV, Dividends and Distri-Exemptionsbutions, on the appropriate schedule using theInclude self-employment income actually or

same procedure. and Deductionsconstructively received or accrued, dependingon the decedent’s accounting method. For

Generally, the rules for exemptions and deduc-Note. If the decedent received amounts as aself-employment tax purposes only, thetions allowed to an individual also apply to thenominee, you must give the actual owner a Formdecedent’s self-employment income will includedecedent’s final income tax return. Show on the1099, unless the owner is the decedent’sthe decedent’s distributive share of afinal return deductible items the decedent paidspouse. See General Instructions for Formspartnership’s income or loss through the end of(or accrued, if the decedent reported deductions1099, 1098, 5498, and W–2G for more informa-the month in which death occurred. For thison an accrual method) before death. This sec-tion on filing forms 1099.purpose, the partnership’s income or loss is con-tion contains a detailed discussion of medicalsidered to be earned ratably over theexpenses because, under certain conditions,partnership’s tax year.the tax treatment can be different for the medicalArcher MSAexpenses of the decedent. See Medical Ex-

The treatment of an Archer MSA or a penses, later.Community IncomeMedicare+Choice MSA at the death of the ac-count holder depends on who acquires the inter-If the decedent was married and domiciled in aest in the account. If the decedent’s estate Exemptionscommunity property state, half of the incomeacquires the interest, the fair market value of thereceived and half of the expenses paid during

You can claim the decedent’s personal exemp-assets in the account on the date of death isthe decedent’s tax year by either the decedenttion on the final income tax return. If the dece-included in income on the decedent’s final re-or spouse may be considered to be the incomedent was another person’s dependent (forturn. The estate tax deduction, discussed later,and expenses of the other. For more informa-example, a parent’s), you cannot claim the per-does not apply to this amount.tion, see Publication 555, Community Property.sonal exemption on the decedent’s final return.If a beneficiary acquires the interest, see the

discussion under Income in Respect of theInterest and Dividend Income Decedent, later. For other information on Archer

Standard DeductionMSAs, see Publication 969, Medical Savings(Forms 1099)Accounts (MSAs). If you do not itemize deductions on the finalA Form 1099 should be received for the dece-

return, the full amount of the appropriate stan-dent reporting interest and dividends earneddard deduction is allowed regardless of the datebefore death and included on the decedent’s Coverdell Education Savingsof death. For information on the appropriatefinal return. A separate Form 1099 should show Account (ESA) standard deduction, see the income tax returnthe interest and dividends earned after the dateinstructions or Publication 501.Generally, the balance in a Coverdell ESA mustof the decedent’s death and paid to the estate or

be distributed within 30 days after the individualother recipient that must include those amountsfor whom the account was established reacheson its return. You can request corrected Forms Medical Expensesage 30, or dies, whichever is earlier. The treat-1099 if these forms do not properly reflect thement of the Coverdell ESA at the death of anright recipient or amounts. Medical expenses paid before death by the de-individual under age 30 depends on who ac-For example, a Form 1099– INT reporting cedent are deductible, subject to limits, on thequires the interest in the account. If theinterest payable to the decedent may include final income tax return if deductions are item-decedent’s estate acquires the interest, theincome that should be reported on the final in- ized. This includes expenses for the decedent,earnings on the account must be included on thecome tax return of the decedent, as well as as well as for the decedent’s spouse and depen-final income tax return of the decedent. Theincome that the estate or other recipient should dents.estate tax deduction, discussed later, does notreport, either as income earned after death or as

Qualified medical expenses are not de-apply to this amount. If a beneficiary acquiresincome in respect of the decedent (discussedductible if paid with a tax-free distribu-the interest, see the discussion under Income inlater). For income earned after death, yoution from an Archer MSA.Respect of the Decedent, later.should ask the payer for a Form 1099 that prop- CAUTION

!erly identifies the recipient (by name and identifi- The age 30 limitation does not apply if thecation number) and the proper amount. If that is individual for whom the account was established Election for decedent’s expenses. Medicalnot possible, or if the form includes an amount or the beneficiary that acquires the account is an expenses that were not paid before death are

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liabilities of the estate and are shown on the Deduction for Losses Creditsfederal estate tax return (Form 706). However, if

A decedent’s net operating loss deduction from You can claim on the final income tax return anymedical expenses for the decedent are paid outtax credits that applied to the decedent beforea prior year and any capital losses (includingof the estate during the 1-year period beginningdeath. Some of these credits are discussedcapital loss carryovers) can be deducted only onwith the day after death, you can elect to treat allnext.the decedent’s final income tax return. A netor part of the expenses as paid by the decedent

operating loss on the decedent’s final incomeat the time they were incurred. Earned income credit. If the decedent wastax return can be carried back to prior years.If you make the election, you can claim all or an eligible individual, you can claim the earned(See Publication 536, Net Operating Lossespart of the expenses on the decedent’s income income credit on the decedent’s final return(NOLs) for Individuals, Estates, and Trusts.)tax return, if deductions are itemized, rather than even though the return covers less than 12You cannot deduct any unused net operatingon the federal estate tax return (Form 706). You months. If the allowable credit is more than theloss or capital loss on the estate’s income taxcan deduct expenses incurred in the year of tax liability for the year, the excess is refunded.return.death on the final income tax return. You should For more information, see Publication 596,

file an amended return (Form 1040X) for medi- Earned Income Credit (EIC).cal expenses incurred in an earlier year, unless At-risk loss limits. Special at-risk rules apply

Credit for the elderly or the disabled. Thisthe statutory period for filing a claim for that year to most activities that are engaged in as a tradecredit is allowable on a decedent’s final incomehas expired. or business or for the production of income.tax return if the decedent was age 65 or older orThe amount you can deduct on the income These rules limit the deductible loss to thehad retired before the end of the tax year ontax return is the amount above 7.5% of adjusted amount for which the individual was consideredpermanent and total disability.gross income. The amounts not deductible be- at risk in the activity. An individual generally will For more information, see Publication 524,cause of this percentage cannot be claimed on be considered at risk to the extent of the money Credit for the Elderly or the Disabled.the federal estate tax return. and the adjusted basis of property that he or she

contributed to the activity and certain amounts Child tax credit. If the decedent had a qualify-Making the election. You make the elec-ing child, you may be able to claim the child taxthe individual borrowed for use in the activity. Antion by attaching a statement, in duplicate, to thecredit on the decedent’s final return even thoughindividual will be considered at risk for amountsdecedent’s income tax return or amended re-the return covers less than 12 months. You mayborrowed only if he or she was personally liableturn. The statement must state that you have notbe able to claim the additional child tax creditfor the repayment or if the amounts borrowedclaimed the amount as an estate tax deduction,and get a refund if the credit is more than thewere secured by property other than that used inand that the estate waives the right to claim thedecedent’s liability. For more information, seethe activity. The individual is not considered atamount as a deduction. This election appliesyour form instructions.risk for borrowed amounts if the lender has anonly to expenses incurred for the decedent, not

interest in the activity or if the lender is related toto expenses incurred to provide medical care for General business tax credit. The generaldependents. a person who has an interest in the activity. For business credit available to a taxpayer is limited.

more information, see Publication 925, Passive Any credit arising in a tax year beginning beforeExample. Richard Brown used the cash Activity and At-Risk Rules. 1998 that has not been used up can be carried

method of accounting and filed his income tax forward for up to 15 years. Any unused creditreturn on a calendar year basis. Mr. Brown died Passive activity rules. A passive activity is arising in a tax year beginning after 1997 has aon June 1, 2003, after incurring $800 in medical any trade or business activity in which the tax- 1-year carryback and a 20-year carryforwardexpenses. Of that amount, $500 was incurred in payer does not materially participate. To deter- period.2002 and $300 was incurred in 2003. Richard mine material participation, see Publication 925. After the carryforward period, a deductionitemized his deductions when he filed his 2002 Rental activities are passive activities regard- may be allowed for any unused business credit.income tax return. The personal representative If the taxpayer dies before the end of the car-less of the taxpayer’s participation, unless theof the estate paid the entire $800 liability in ryforward period, the deduction generally is al-taxpayer meets certain eligibility requirements.August 2003. lowed in the year of death.Individuals, estates, and trusts can offset

The personal representative may file an For more information on the general busi-passive activity losses only against passive ac-amended return (Form 1040X) for 2002 claiming ness credit, see Publication 334, Tax Guide fortivity income. Passive activity losses or creditsthe $500 medical expense as a deduction, sub- Small Business.that are not allowed in one tax year can beject to the 7.5% limit. The $300 of expenses

carried forward to the next year.incurred in 2003 can be deducted on the finalIf a passive activity interest is transferredincome tax return if deductions are itemized, Other Taxes

because a taxpayer dies, the accumulated un-subject to the 7.5% limit. The personal represen-used passive activity losses are allowed as a Taxes other than income tax that may be owedtative must file a statement in duplicate withdeduction against the decedent’s income in the on the final return of a decedent include self-em-each return stating that these amounts have notyear of death. Losses are allowed only to the ployment tax and alternative minimum tax,been claimed on the federal estate tax returnextent they are greater than the excess of the which are reported on Form 1040.(Form 706), and waiving the right to claim such atransferee’s (recipient of the interest trans-deduction on Form 706 in the future. Self-employment tax. Self-employment taxferred) basis in the property over the decedent’s

may be owed on the final return if either of theMedical expenses not paid by estate. If you adjusted basis in the property immediatelyfollowing applied to the decedent in the year ofpaid medical expenses for your deceased before death. The portion of the losses that isdeath.spouse or dependent, claim the expenses on equal to the excess is not allowed as a deduc-

your tax return for the year in which you paid tion for any tax year. 1) Net earnings from self-employment (ex-them, whether they are paid before or after the Use Form 8582, Passive Activity Loss Limi- cluding income described in (2)) weredecedent’s death. If the decedent was a child of $400 or more.tations, to summarize losses and income fromdivorced or separated parents, the medical ex- passive activities and to figure the amounts al- 2) Wages from services performed as apenses can usually be claimed by both the cus- lowed. For more information, see Publication church employee were $108.28 or more.todial and noncustodial parent to the extent paid 925.by that parent during the year.

Alternative minimum tax (AMT). The taxCredits, Other Taxes,Insurance reimbursements. Insurance reim- laws give special treatment to some kinds of

bursements of previously deducted medical ex- income and allow special deductions and creditsand Paymentspenses due a decedent at the time of death and for some kinds of expenses. The alternative

This section includes brief discussions of somelater received by the decedent’s estate are in- minimum tax (AMT) was enacted so that certainof the tax credits, types of taxes that may becludible in the income tax return of the estate taxpayers who benefit from these laws still payowed, income tax withheld, and estimated tax(Form 1041) for the year the reimbursements at least a minimum amount of tax. In general, thepayments that are reported on the final return ofare received. The reimbursements are also in- AMT is the excess of the tentative minimum tax

cludible in the decedent’s gross estate. a decedent. over the regular tax shown on the return.

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Form 6251. Use Form 6251, Alternative Service center for the place where you live. A tax allowed for the tax years for which the period forMinimum Tax—Individuals, to determine if this return for a decedent can be electronically filed. filing a claim for refund has not ended, as dis-tax applies to the decedent. See the form in- cussed later.structions for information on when you must Tax Forgiveness for

Military or terrorist action defined. A militaryattach the form to the tax return. Deaths Due to Military or terrorist action means the following.or Terrorist Actions

• Any terrorist activity that most of the evi-Payments of Taxdence indicates was directed against theThe decedent’s income tax liability may be for-United States or any of its allies.given if his or her death was due to service in aThe income tax withheld from the decedent’s

combat zone or to military or terrorist actions.salary, wages, pensions, or annuities, and the • Any military action involving the U.S.amount paid as estimated tax, for example, are Armed Forces and resulting from violenceThe Victims of Terrorism Tax Relief Actcredits (advance payments of tax) that you must or aggression against the United States orof 2001 provides tax relief for thoseclaim on the final return. any of its allies, or the threat of such vio-injured or killed as a result of terroristCAUTION

!lence or aggression.attacks, certain survivors of those killed as a

Name, Address, result of terrorist attacks, and others who wereTerrorist activity includes criminal offenses in-affected by terrorist attacks. For information onand Signature

tended to coerce, intimidate, or retaliate againstthat Act, see Publication 3920.the government or civilian population. MilitaryThe word “DECEASED,” the decedent’s name,action does not include training exercises. Anyand the date of death should be written acrossmultinational force in which the United States isthe top of the tax return. In the name and ad- Combat Zoneparticipating is treated as an ally of the Uniteddress space you should write the name andStates.If a member of the Armed Forces of the Unitedaddress of the decedent and, if a joint return, of

States dies while in active service in a combatthe surviving spouse. If a joint return is not being Determining if a terrorist activity or mili-zone or from wounds, disease, or injury incurredfiled, the decedent’s name should be written in tary action has occurred. You may rely onin a combat zone, the decedent’s income taxthe name space and the personal published guidance from the IRS to determine ifliability is abated (forgiven) for the entire year inrepresentative’s name and address should be a particular event is considered a terrorist activ-which death occurred and for any prior tax yearwritten in the remaining space. ity or military action.ending on or after the first day the person served

Third party designee. You can check the Yes in a combat zone in active service. For thisbox in the Third Party Designee area of the purpose, a qualified hazardous duty area is Claim for Credit or Refundreturn to authorize the IRS to discuss the return treated as a combat zone.with a friend, family member, or any other per- If the tax (including interest, additions to the If any of these tax-forgiveness situations appliesson you choose. This allows the IRS to call the tax, and additional amounts) for these years has to a prior year tax, any tax paid for which theperson you identified as the designee to answer been assessed, the assessment will be forgiven. period for filing a claim has not ended will beany questions that may arise during the If the tax has been collected (regardless of the credited or refunded. If any tax is still due, it willprocessing of the return. It also allows the desig- date of collection), that tax will be credited or be canceled. The normal period for filing a claimnee to perform certain actions. See the income refunded. for credit or refund is 3 years after the return wastax package for details. filed or 2 years after the tax was paid, whicheverAny of the decedent’s income tax for tax

is later.years before those mentioned above that re-Signature. If a personal representative has mains unpaid as of the actual (or presumptive) If death occurred in a combat zone or frombeen appointed, that person must sign the re- date of death will not be assessed. If any unpaid wounds, disease, or injury incurred in a combatturn. If it is a joint return, the surviving spouse tax (including interest, additions to the tax, and zone, the period for filing the claim is extendedmust also sign it. If no personal representative additional amounts) has been assessed, this by: has been appointed, the surviving spouse (on a assessment will be forgiven. Also, if any tax wasjoint return) should sign the return and write in 1) The amount of time served in the combatcollected after the date of death, that amount willthe signature area “Filing as surviving spouse.” zone (including any period in which thebe credited or refunded.If no personal representative has been ap- individual was in missing status), plusThe date of death of a member of the Armedpointed and if there is no surviving spouse, the Forces reported as missing in action or as a 2) The period of continuous qualified hospi-person in charge of the decedent’s property prisoner of war is the date his or her name is talization for injury from service in the com-must file and sign the return as “personal repre- removed from missing status for military pay bat zone, if any, plussentative.” purposes. This is true even if death actually

3) The next 180 days.occurred earlier.Paid preparer. If you pay someone to pre-

Qualified hospitalization means any hospitaliza-pare, assist in preparing, or review the tax re-tion outside the United States and any hospitali-turn, that person must sign the return and fill in Military or Terrorist Actions zation in the United States of not more than 5the other blanks in the paid preparer’s area ofyears.the return. See the income tax package for de- The decedent’s income tax liability is forgiven if,

This extended period for filing the claim alsotails. at death, he or she was a military or civilianapplies to a member of the Armed Forces whoemployee of the United States who died be-was deployed outside the United States in acause of wounds or injury incurred:When and Where To Filedesignated contingency operation.

• While a U.S. employee, andThe final income tax return is due at the sameFiling a claim. Use the following procedurestime the decedent’s return would have been due • In a military or terrorist action.to file a claim.had death not occurred. A final return for a

decedent who was a calendar year taxpayer is The forgiveness applies to the tax year in 1) If a U.S. individual income tax return (Formgenerally due on April 15 following the year of which death occurred and for any prior tax year 1040, 1040A, or 1040EZ) has not beendeath, regardless of when during that year death in the period beginning with the year before the filed, you should make a claim for refundoccurred. However, when the due date falls on a year in which the wounds or injury occurred. of any withheld income tax or estimatedSaturday, Sunday, or legal holiday, the return istax payments by filing Form 1040. Formfiled timely if filed by the next business day. Example. The income tax liability of a civil-W–2, Wage and Tax Statement, must ac-The tax return must be prepared on a form ian employee of the United States who died incompany all returns.for the year of death regardless of when during 2003 because of wounds incurred while a U.S.

the year death occurred. employee in a terrorist attack that occurred in 2) If a U.S. individual income tax return hasGenerally, you must file the final income tax 1989 will be forgiven for 2003 and for all prior tax been filed, you should make a claim for

return of the decedent with the Internal Revenue years in the period 1988–2002. Refunds are refund by filing Form 1040X. You must file

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a separate Form 1040X for each year in The amount in (3) above is the decedent’s Decedent as your dependent. If the dece-dent qualified as your dependent for the part ofquestion. tax liability that is eligible for forgiveness.the year before death, you can claim the exemp-

You must file these returns and claims tion for the dependent on your tax return, regard-Filing Remindersat the following address for regular mail less of when death occurred during the year.(U.S. Postal Service): If the decedent was your qualifying child, youTo minimize the time needed to process the

may be able to claim the child tax credit or thedecedent’s final return and issue any refund, beearned income credit.sure to follow these procedures.Internal Revenue Service

P.O. Box 4053Qualifying widows and widowers. If your1) Write “DECEASED,” the decedent’s name,Woburn, MA 01888spouse died within the 2 tax years preceding theand the date of death across the top of theyear for which your return is being filed, you maytax return.

For private delivery services, use the following be eligible to claim the filing status of qualifying2) If a personal representative has been ap-address: widow(er) with dependent child and qualify to

pointed, the personal representative must use the Married filing jointly tax rates.Internal Revenue Servicesign the return. If it is a joint return, theStop 661 Requirements. Generally, you qualify forsurviving spouse must also sign it.Andover, MA 05501 this special benefit if you meet all of the following

3) If you are the decedent’s spouse filing aIdentify all returns and claims for refund by requirements.joint return with the decedent and no per-writing “Enduring Freedom—KIA,” “Kosovo Op- • You were entitled to file a joint return withsonal representative has been appointed,eration — KIA,” “Desert Storm — KIA,” or “For-

your spouse for the year of death —write “Filing as surviving spouse” in themer Yugoslavia — KIA” in bold letters on the top whether or not you actually filed jointly.area where you sign the return.of page 1 of the return or claim. On Forms 1040• You did not remarry before the end of theand 1040X, write the same phrase on the line for 4) If no personal representative has been ap-

current tax year.total tax. If the individual was killed in a terrorist pointed and if there is no surviving spouse,or military action, put “KITA” on the front of the the person in charge of the decedent’s • You have a child, stepchild, or foster childreturn and on the line for total tax. property must file and sign the return as who qualifies as your dependent for the

An attachment should include a computation “personal representative.” tax year.of the decedent’s tax liability and a computation

5) To claim a refund for the decedent, do the • You provide more than half the cost ofof the amount that is to be forgiven. On jointfollowing. maintaining your home, which is the princi-returns, you must make an allocation of the tax

pal residence of that child for the entireas described later under Joint returns. If you a) If you are the decedent’s spouse filing a year except for temporary absences.cannot make a proper allocation, you should joint return with the decedent, file onlyattach a statement of all income and deductions the tax return to claim the refund.allocable to each spouse and the IRS will make Example. William Burns’ wife died in 2001.

b) If you are the personal representativethe proper allocation. Mr. Burns has not remarried and continuedand the return is not a joint return filed throughout 2002 and 2003 to maintain a homeYou must attach Form 1310 to all returns andwith the decedent’s surviving spouse, for himself and his dependent child. For 2001 heclaims for refund. However, for exceptions tofile the return and attach a copy of the was entitled to file a joint return for himself andfiling Form 1310, see Form 1310 under Refund,certificate that shows your appointment his deceased wife. For 2002 and 2003, he quali-earlier.by the court. (A power of attorney or a fies to file as a qualifying widow(er) with depen-You must also attach proof of death thatcopy of the decedent’s will is not ac- dent child. For later years, he may qualify to fileincludes a statement that the individual was aceptable evidence of your appointment as a head of household.U.S. employee on the date of injury and on theas the personal representative.) If youdate of death and died as the result of a military Figuring your tax. Check the box on line 5are filing an amended return, attachor terrorist action. For military and civilian em- (Form 1040 or 1040A) under filing status on yourForm 1310 and a copy of the certificateployees of the Department of Defense, attach tax return and enter the year of death in theof appointment (or, if you have alreadyDD Form 1300. For other U.S. civilian employ- parentheses. Use the Tax Rate Schedule or thesent the certificate of appointment toees killed in the United States, attach a death column in the Tax Table for Married filing jointly,IRS, write “Certificate Previously Filed”certificate and a certification (letter) from the which gives you the split-income benefits.at the bottom of Form 1310).federal employer. For other U.S. civilian employ- The last year you can file jointly with, or claim

ees killed overseas, attach a certification from an exemption for, your deceased spouse is thec) If you are not filing a joint return as thethe Department of State. year of death.surviving spouse and a personal repre-

If you do not have enough tax information to sentative has not been appointed, fileJoint return filing rules. If you are the surviv-file a timely claim for refund, you can suspend the return and attach Form 1310.ing spouse and a personal representative isthe period for filing a claim by filing Form 1040X.handling the estate for the decedent, you shouldAttach Form 1310, any required documentationcoordinate filing your return for the year of deathcurrently available, and a statement that you willwith this personal representative. See Joint Re-file an amended claim as soon as you have theturn earlier under Final Return for Decedent.required tax information. Other Tax Information

Joint returns. If a joint return was filed, only Income in RespectThis section contains information about the ef-the decedent’s part of the income tax liability is of a Decedentfect of an individual’s death on the income taxeligible for forgiveness. Determine theliability of the survivors (including widows anddecedent’s tax liability as follows. All income the decedent would have receivedwidowers), the beneficiaries, and the estate.

had death not occurred that was not properly1) Figure the income tax for which the dece-includible on the final return, discussed earlier,dent would have been liable if a separate Tax Benefits for Survivorsis income in respect of a decedent.return had been filed.

Survivors can qualify for certain benefits when If the decedent is a specified terrorist2) Figure the income tax for which the filing their own income tax returns. victim (see Important Reminders), in-spouse would have been liable if a sepa-come received after the date of deathCAUTION

!rate return had been filed. Joint return by surviving spouse. A surviv- and before the end of the decedent’s tax year

ing spouse can file a joint return for the year of3) Multiply the joint tax liability by a fraction. (determined without regard to death) is excludeddeath and may qualify for special tax rates forThe numerator of the fraction is the from the recipient’s gross income. This exclu-the following 2 years, as explained under Quali-amount in (1), above. The denominator of sion does not apply to certain income. For morefying widows and widowers, later.the fraction is the total of (1) and (2). information, see Publication 3920.

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decedent. None of these commissions were in-How To Report Specific Types of Incomecludible in your father’s final return. The com- in Respect of a Decedent

Income in respect of a decedent must be in- missions received by your mother were includedcluded in the income of one of the following. This section explains and provides examples ofin her income. The commissions you received

some specific types of income in respect of aare not includible in your mother’s income, even• The decedent’s estate, if the estate re- decedent.on her final return. You must include them inceives it.your income.

Wages. The entire amount of wages or other• The beneficiary, if the right to income isemployee compensation earned by the dece-passed directly to the beneficiary and the Character of income. The character of the dent but unpaid at the time of death is income inbeneficiary receives it. income you receive in respect of a decedent is respect of a decedent. The income is not re-

the same as it would be to the decedent if he or• Any person to whom the estate properly duced by any amounts withheld by the em-she were alive. If the income would have been adistributes the right to receive it. ployer. If the income is $600 or more, thecapital gain to the decedent, it will be a capital employer should report it in box 3 of Formgain to you. 1099–MISC and give the recipient a copy of theIf you have to include income in re-

form or a similar statement.spect of a decedent in your income and Transfer of right to income. If you transfer Wages paid as income in respect of a dece-an estate tax return (Form 706) wasTIP

your right to income in respect of a decedent, dent are not subject to federal income tax with-filed for the decedent, you may be able to claim you must include in your income the greater of: holding. However, if paid during the calendara deduction for the estate tax paid on that in-year of death, they are subject to withholding for• The amount you receive for the right, orcome. See Estate Tax Deduction, later.social security and Medicare taxes. These taxes

• The fair market value of the right you should be included on the decedent’s FormExample 1. Frank Johnson owned and op- transfer. W–2 with the taxes withheld before death.erated an apple orchard. He used the cash

These wages are not included in box 1 of Formmethod of accounting. He sold and delivered If you make a gift of such a right, you must W–2.1,000 bushels of apples to a canning factory for include in your income the fair market value of Wages paid as income in respect of a dece-$2,000, but did not receive payment before his the right at the time of the gift. dent after the year of death generally are notdeath. The proceeds from the sale are income in If the right to income from an installment subject to withholding for any federal taxes.respect of a decedent. When the estate was obligation is transferred, the amount you mustsettled, payment had not been made and the Farm income from crops, crop shares, andinclude in income is reduced by the basis of theestate transferred the right to the payment to his livestock. A farmer’s growing crops and live-obligation. See Installment obligations, later.widow. When Frank’s widow collects the $2,000, stock at the date of death normally would not

Transfer defined. A transfer for this pur-she must include that amount in her return. It is give rise to income in respect of a decedent orpose includes a sale, exchange, or other dispo-not reported on the final return of the decedent income to be included in the final return. How-sition, the satisfaction of an installmentor on the return of the estate. ever, when a cash method farmer receives rentobligation at other than face value, or the cancel- in the form of crop shares or livestock and ownslation of an installment obligation.Example 2. Assume the same facts as in the crop shares or livestock at the time of death,

Example 1, except that Frank used the accrual the rent is income in respect of a decedent andmethod of accounting. The amount accrued Installment obligations. If the decedent had is reported in the year in which the crop sharesfrom the sale of the apples would be included on sold property using the installment method and or livestock are sold or otherwise disposed of.his final return. Neither the estate nor the widow you collect payments on an installment obliga- The same treatment applies to crop shares orwould realize income in respect of a decedent tion you acquired from the decedent, use the livestock the decedent had a right to receive aswhen the money is later paid. same gross profit percentage the decedent used rent at the time of death for economic activities

to figure the part of each payment that repre- that occurred before death.Example 3. On February 1, George High, a sents profit. Include in your income the same If the individual died during a rental period,

cash method taxpayer, sold his tractor for profit the decedent would have included had only the proceeds from the portion of the rental$3,000, payable March 1 of the same year. His death not occurred. For more information, see period ending with death are income in respectadjusted basis in the tractor was $2,000. Mr. Publication 537, Installment Sales. of a decedent. The proceeds from the portion ofHigh died on February 15, before receiving pay- If you dispose of an installment obligation the rental period from the day after death to thement. The gain to be reported as income in acquired from a decedent (other than by transfer end of the rental period are income to the estate.respect of a decedent is the $1,000 difference to the obligor), the rules explained in Publication Cash rent or crop shares and livestock receivedbetween the decedent’s basis in the property 537 for figuring gain or loss on the disposition as rent and reduced to cash by the decedent areand the sale proceeds. In other words, the in- apply to you. includible in the final return even though thecome in respect of a decedent is the gain the rental period did not end until after death.Transfer to obligor. A transfer of a right todecedent would have realized had he lived.

income, discussed earlier, has occurred if theExample. Alonzo Roberts, who used thedecedent (seller) had sold property using theExample 4. Cathy O’Neil was entitled to a cash method of accounting, leased part of hisinstallment method and the installment obliga-large salary payment at the date of her death. farm for a 1-year period beginning March 1. Thetion is transferred to the obligor (buyer or personThe amount was to be paid in five annual install- rental was one-third of the crop, payable in cashlegally obligated to pay the installments). Aments. The estate, after collecting two install- when the crop share is sold at the direction oftransfer also occurs if the obligation is canceledments, distributed the right to the remaining Roberts. Roberts died on June 30 and was aliveeither at death or by the estate or person receiv-installments to you, the beneficiary. The pay- during 122 days of the rental period. Sevening the obligation from the decedent. An obliga-ments are income in respect of a decedent. months later, Roberts’ personal representativetion that becomes unenforceable is treated asNone of the payments were includible on ordered the crop to be sold and was paidhaving been canceled.Cathy’s final return. The estate must include in $1,500. Of the $1,500, 122/365, or $501, is

If such a transfer occurs, the amount in-its income the two installments it received, and income in respect of a decedent. The balance ofcluded in the income of the transferor (the estateyou must include in your income each of the the $1,500 received by the estate, $999, is in-or beneficiary) is the greater of the amount re-three installments as you receive them. come to the estate.ceived or the fair market value of the installmentobligation at the time of transfer, reduced by theExample 5. You inherited the right to re- Partnership income. If the partner who diedbasis of the obligation. The basis of the obliga-ceive renewal commissions on life insurance had been receiving payments representing ation is the decedent’s basis, adjusted for allsold by your father before his death. You inher- distributive share or guaranteed payment in liq-installment payments received after theited the right from your mother, who acquired it uidation of the partner’s interest in a partnership,decedent’s death and before the transfer.by bequest from your father. Your mother died the remaining payments made to the estate or

before she received all the commissions she If the decedent and obligor were related per- other successor in interest are income in respecthad the right to receive, so you received the rest. sons, the fair market value of the obligation of a decedent. The estate or the successor re-The commissions are income in respect of a cannot be less than its face value. ceiving the payments must include them in in-

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come when received. Similarly, the estate or the decedent’s final income tax return. You are a the subtotal. Identify this adjustment as “U.S.other successor in interest receives income in Savings Bond Interest Previously Reported.”cash method taxpayer and do not choose torespect of a decedent if amounts are paid by a report the increase in value each year as it isthird person in exchange for the successor’s earned. Assuming you cash it when it reaches Interest accrued on U.S. Treasury bonds.right to the future payments. The interest accrued on U.S. Treasury bondsmaturity value of $1,000, you would report $500

For a discussion of partnership rules, see owned by a cash method taxpayer and redeem-interest income (the difference between maturityPublication 541, Partnerships. able for the payment of federal estate taxes thatvalue of $1,000 and the original cost of $500) in

was not received as of the date of thethat year. You also are entitled to claim, in thatU.S. savings bonds acquired from decedent. individual’s death is income in respect of a dece-year, a deduction for any federal estate tax re-If series EE or series I U.S. savings bonds that dent. This interest is not included in thesulting from the inclusion in your uncle’s estatewere owned by a cash method individual who decedent’s final income tax return. The estateof the $94 increase in value.had chosen to report the interest each year (or will treat such interest as taxable income in theby an accrual method individual) are transferred Example 2. If, in Example 1, the personal tax year received if it chooses to redeem thebecause of death, the increase in value of the U.S. Treasury bonds to pay federal estate taxes.representative had chosen to include the $94bonds (interest earned) in the year of death up to If the person entitled to the bonds (by bequest,interest earned on the bond before death in thethe date of death must be reported on the devise, or inheritance, or because of the deathfinal income tax return of your uncle, you woulddecedent’s final return. The transferee (estate or of the individual) receives them, that person willreport $406 ($500 − $94) as interest when youbeneficiary) reports on its return only the interest treat the accrued interest as taxable income incashed the bond at maturity. This $406 repre-earned after the date of death. the year the interest is received. Interest thatsents the interest earned after your uncle’s

The redemption values of U.S. savings accrues on the U.S. Treasury bonds after thedeath and was not included in his estate, so nobonds generally are available from local banks, owner’s death does not represent income indeduction for federal estate tax is allowable forsavings and loan institutions, or your nearest respect of a decedent. The interest, however, isthis amount.Federal Reserve Bank. taxable income and must be included in the

You also can get information by writing to the Example 3. Your uncle died owning series income of the respective recipients.following address. HH bonds that he acquired in exchange for se-

ries EE bonds. You were the beneficiary on Interest accrued on savings certificates.Bureau of the Public Debtthese bonds. Your uncle used the cash method The interest accrued on savings certificates (re-P.O. Box 1328of accounting and had not chosen to report the deemable after death without forfeiture of inter-Parkersburg, WV 26106–1328increase in redemption price of the series EE est) that is for the period from the date of the lastbonds each year as it accrued. Your uncle’s interest payment and ending with the date of theOr, on the Internet, visit the followingpersonal representative made no election to in- decedent’s death, but not received as of thatsite.clude any interest earned before death in the date, is income in respect of a decedent. Interestwww.publicdebt.treas.govdecedent’s final return. Your income in respect for a period after the decedent’s death that be-

If the bonds transferred because of death of the decedent is the sum of the unreported comes payable on the certificates after death iswere owned by a cash method individual who increase in value of the series EE bonds, which not income in respect of a decedent, but ishad not chosen to report the interest each year constituted part of the amount paid for series HH taxable income includible in the income of theand had purchased the bonds entirely with per- bonds, and the interest, if any, payable on the respective recipients.sonal funds, interest earned before death must series HH bonds but not received as of the datebe reported in one of the following ways. of the decedent’s death. Inherited IRAs. If a beneficiary receives a

lump-sum distribution from a traditional IRA heSpecific dollar amount legacy satisfied by1) The person (executor, administrator, etc.)or she inherited, all or some of it may be taxable.transfer of bonds. If you receive series EE orwho must file the final income tax return ofThe distribution is taxable in the year receivedseries I bonds from an estate in satisfaction of athe decedent can elect to include in it all ofas income in respect of a decedent up to thespecific dollar amount legacy and the decedentthe interest earned on the bonds beforedecedent’s taxable balance. This is thewas a cash method taxpayer who did not elect tothe decedent’s death. The transferee (es-decedent’s balance at the time of death, includ-report interest each year, only the interesttate or beneficiary) then includes in its re-ing unrealized appreciation and income accruedearned after you receive the bonds is your in-turn only the interest earned after the dateto date of death, minus any basis (nondeductibleof death. come. The interest earned to the date of deathcontributions). Amounts distributed that areplus any further interest earned to the date of2) If the election in (1), above, was not made, more than the decedent’s entire IRA balancedistribution is income to (and reportable by) thethe interest earned to the date of death is (includes taxable and nontaxable amounts) atestate.income in respect of the decedent and is the time of death are the income of the benefi-

not included in the decedent’s final return. Cashing U.S. savings bonds. When you ciary.In this case, all of the interest earned cash a U.S. savings bond that you acquired from If the beneficiary of a traditional IRA is thebefore and after the decedent’s death is a decedent, the bank or other payer that re- decedent’s surviving spouse who properly rollsincome to the transferee (estate or benefi- deems it must give you a Form 1099– INT if the over the distribution into another traditional IRA,ciary). A transferee who uses the cash interest part of the payment you receive is $10 or the distribution is not currently taxed. A survivingmethod of accounting and who has not more. Your Form 1099– INT should show the spouse also can roll over tax free the taxablechosen to report the interest annually may difference between the amount received and the part of the distribution into a qualified plan, sec-defer reporting any of it until the bonds are cost of the bond. The interest shown on your tion 403 annuity, or section 457 plan.cashed or the date of maturity, whichever Form 1099– INT will not be reduced by anyis earlier. In the year the interest is re- interest reported by the decedent before death, Example 1. At the time of his death, Gregported, the transferee may claim a deduc- or, if elected, by the personal representative on owned a traditional IRA. All of the contributionstion for any federal estate tax paid that the final income tax return of the decedent, or by by Greg to the IRA had been deductible contri-arose because of the part of interest (if the estate on the estate’s income tax return. butions. Greg’s nephew, Mark, was the soleany) included in the decedent’s estate. Your Form 1099– INT may show more interest beneficiary of the IRA. The entire balance of the

than you must include in your income. IRA, including income accruing before and afterYou must make an adjustment on your tax Greg’s death, was distributed to Mark in a lumpExample 1. Your uncle, a cash method tax-

return to report the correct amount of interest. sum. Mark must include the total amount re-payer, died and left you a $1,000 series EEReport the total interest shown on Form ceived in his income. The portion of thebond. He had bought the bond for $500 and had1099–INT on your Schedule 1 (Form 1040A) or lump-sum distribution that equals the amount ofnot chosen to report the increase in value eachSchedule B (Form 1040). Enter a subtotal of the the balance in the IRA at Greg’s death, includingyear. At the date of death, interest of $94 had

the income earned before death, is income ininterest shown on Forms 1099, and the interestaccrued on the bond, and its value of $594 atrespect of the decedent. Mark may take a de-reportable from other sources for which you diddate of death was included in your uncle’s es-duction for any federal estate taxes that werenot receive Forms 1099. Show the total interesttate. Your uncle’s personal representative didpaid on that portion.not choose to include the $94 accrued interest in that was previously reported and subtract it from

Page 10



Example 2. Assume the same facts as in beneficiary within 1 year after the decedent’s Estate Tax DeductionExample 1, except that some of Greg’s contribu- date of death. An estate tax deduction, dis-tions to the IRA had been nondeductible contri- cussed later, applies to the amount included in Income that a decedent had a right to receive isbutions. To determine the amount to include in included in the decedent’s gross estate and isincome by a beneficiary other than theincome, Mark must subtract the total nondeduct- subject to estate tax. This income in respect of adecedent’s spouse or family member.ible contributions made by Greg from the total decedent is also taxed when received by theamount received (including the income that was recipient (estate or beneficiary). However, anArcher MSA. The treatment of an Archer MSAearned in the IRA both before and after Greg’s income tax deduction is allowed to the recipientor a Medicare+Choice MSA, at the death of thedeath). Income in respect of a decedent is the for the estate tax paid on the income.account holder depends on who acquires thetotal amount included in income less the income The deduction for estate tax can be claimedinterest in the account. If the decedent’s estateearned after Greg’s death. only for the same tax year in which the income inacquired the interest, see the discussion under

For more information on inherited IRAs, see respect of a decedent must be included in theFinal Return for Decedent, earlier.Publication 590. recipient’s income. (This also is true for incomeIf the decedent’s spouse is the designated

in respect of a prior decedent.)beneficiary of the account, the account becomesRoth IRAs. Qualified distributions from a Roth Individuals can claim this deduction only as

IRA are not subject to tax. A distribution made to that spouse’s Archer MSA. It is subject to the an itemized deduction on line 27 of Schedule Aa beneficiary or to the Roth IRA owner’s estate rules discussed in Publication 969. (Form 1040). This deduction is not subject to theon or after the date of death is a qualified distri- Any other beneficiary (including a spouse 2% limit on miscellaneous itemized deductions.bution if it is made after the 5-tax-year period that is not the designated beneficiary) must in- Estates can claim the deduction on the line pro-beginning with the first tax year in which a contri- clude in income the fair market value of the vided for the deduction on Form 1041. For thebution was made to any Roth IRA of the owner. assets in the account on the decedent’s date of alternative minimum tax computation, the de-

Generally, the entire interest in the Roth IRA death. This amount must be reported for the duction is not included in the itemized deduc-must be distributed by the end of the fifth calen- beneficiary’s tax year that includes the tions that are an adjustment to taxable income.dar year after the year of the owner’s death decedent’s date of death. The amount included If income in respect of a decedent is capitalunless the interest is payable to a designated in income is reduced by any qualified medical gain income, you must reduce the gain, but notbeneficiary over his or her life or life expectancy. expenses for the decedent that are paid by the below zero, by any deduction for estate tax paidIf paid as an annuity, the distributions must be- on such gain. This applies in figuring the follow-beneficiary within 1 year after the decedent’sgin before the end of the calendar year following ing.date of death. An estate tax deduction, dis-the year of death. If the sole beneficiary is the

cussed later, applies to the amount included in • The maximum tax on net capital gain.decedent’s spouse, the spouse can delay theincome by a beneficiary other than thedistributions until the decedent would have • The 50% exclusion for gain on small busi-decedent’s spouse.reached age 701/2 or can treat the Roth IRA as ness stock.

his or her own Roth IRA.Deductions in Respect • The limitation on capital losses.Part of any distribution to a beneficiary that is

not a qualified distribution may be includible in of a Decedentthe beneficiary’s income. Generally, the part in- Computation

Items such as business expenses, income-pro-cludible is the earnings in the Roth IRA. Earn-ings attributable to the period ending with the ducing expenses, interest, and taxes, for which To figure a recipient’s estate tax deduction, de-decedent’s date of death are income in respect the decedent was liable but that are not properly termine—of a decedent. Additional earnings are the in- allowable as deductions on the decedent’s final • The estate tax that qualifies for the deduc-come of the beneficiary. income tax return will be allowed as a deduction

tion, andFor more information on Roth IRAs, see to one of the following when paid.Publication 590. • The recipient’s part of the deductible tax.• The estate.Coverdell education savings account (ESA).

• The person who acquired an interest inGenerally, the balance in a Coverdell ESA must Deductible estate tax. The estate tax is thethe decedent’s property (subject to suchbe distributed within 30 days after the individual tax on the taxable estate, reduced by any creditsobligations) because of the decedent’sfor whom the account was established reaches allowed. The estate tax qualifying for the deduc-death, if the estate was not liable for theage 30 or dies, whichever is earlier. The treat- tion is the part of the net value of all the items inobligation.ment of the Coverdell ESA at the death of an the estate that represents income in respect of a

individual under age 30 depends on who ac- decedent. Net value is the excess of the itemsSimilar treatment is given to the foreign taxquires the interest in the account. If the of income in respect of a decedent over the

credit. A beneficiary who must pay a foreign taxdecedent’s estate acquires the interest, see the items of expenses in respect of a decedent. Theon income in respect of a decedent will be enti-discussion under Final Return for Decedent, deductible estate tax is the difference betweentled to claim the foreign tax credit.earlier. the actual estate tax and the estate tax deter-

mined without including net value.The age 30 limitation does not apply ifDepletion. The deduction for percentage de-the individual for whom the account

Example 1. Jack Sage used the cashpletion is allowable only to the person (estate orwas established or the beneficiary thatCAUTION!

method of accounting. At the time of his death,beneficiary) who receives income in respect of aacquires the account is an individual with specialhe was entitled to receive $12,000 from clientsdecedent to which the deduction relates,needs. This includes an individual who, becausefor his services and he had accrued bond inter-whether or not that person receives the propertyof a physical, mental, or emotional conditionest of $8,000, for a total income in respect of afrom which the income is derived. An heir who(including a learning disability), requires addi-decedent of $20,000. He also owed $5,000 for(because of the decedent’s death) receives in-tional time to complete his or her education.business expenses for which his estate is liable.come as a result of the sale of units of mineral byIf the decedent’s spouse or other family The income and expenses are reported onthe decedent (who used the cash method) willmember is the designated beneficiary of the Jack’s estate tax return.be entitled to the depletion allowance for thatdecedent’s account, the Coverdell ESA be- The tax on Jack’s estate is $9,460 after cred-income. If the decedent had not figured the de-comes that person’s Coverdell ESA. It is subject its. The net value of the items included as in-duction on the basis of percentage depletion,to the rules discussed in Publication 970. come in respect of the decedent is $15,000any depletion deduction to which the decedentAny other beneficiary (including a spouse or ($20,000 − $5,000). The estate tax determinedwas entitled at the time of death would be allow-family member who is not the designated benefi- without including the $15,000 in the taxable es-able on the decedent’s final return, and no de-ciary) must include in income the earnings por- tate is $4,840, after credits. The estate tax thatpletion deduction in respect of a decedent wouldtion of the distribution. Any balance remaining at qualifies for the deduction is $4,620 ($9,460 −be allowed to anyone else.the close of the 30-day period is deemed to be $4,840).

For more information about depletion, seedistributed at that time. The amount included inchapter 10 in Publication 535, Business Ex-income is reduced by any qualified education Recipient’s deductible part. Figure thepenses.expenses of the decedent that are paid by the recipient’s part of the deductible estate tax by

Page 11



dividing the estate tax value of the items of you can exclude part of each installment fromInsuranceincome in respect of a decedent included in the your income.

The proceeds from a decedent’s life insurancerecipient’s income (the numerator) by the totalTo determine the part excluded, divide thepolicy paid by reason of his or her death gener-value of all items included in the estate that

amount held by the insurance company (gener-ally are excluded from income. The exclusionrepresents income in respect of a decedent (theally the total lump sum payable at the death ofapplies to any beneficiary, whether a familydenominator). If the amount included in thethe insured person) by the number of install-member or other individual, a corporation, or arecipient’s income is less than the estate taxments to be paid. Include anything over thispartnership.value of the item, use the lesser amount in theexcluded part in your income as interest.numerator. Veterans’ insurance proceeds. Veterans’ in-

Specified number of installments. If yousurance proceeds and dividends are not taxableExample 2. As the beneficiary of Jack’s es- will receive a specified number of installmentseither to the veteran or to the beneficiaries.tate (Example 1), you collect the $12,000 ac- under the insurance contract, figure the part ofInterest on dividends left on deposit with thecounts receivable from his clients. You will each installment you can exclude by dividing theDepartment of Veterans Affairs is not taxable.include the $12,000 in your income in the tax amount held by the insurance company by theyear you receive it. If you itemize your deduc- number of installments to which you are entitled.Life insurance proceeds. Life insurance pro-tions in that tax year, you can claim an estate tax A secondary beneficiary, in case you die beforeceeds paid to you because of the death of thededuction of $2,772 figured as follows: you receive all of the installments, is entitled toinsured (or because the insured is a member of

the same exclusion.the U.S. uniformed services who is missing inValue included in yourEstate tax action) are not taxable unless the policy wasincome

X qualifying for Example. As beneficiary, you choose to re-turned over to you for a price. This is true even ifTotal value of income in deduction ceive $40,000 of life insurance proceeds in 10the proceeds are paid under an accident or

respect of decedent annual installments of $6,000. Each year, youhealth insurance policy or an endowment con-$12,000 can exclude from your income $4,000 ($40,000tract. If the proceeds are received in install-

X $4,620 = $2,772 ÷ 10) as a return of principal. The balance of thements, see the discussion under Insurance$20,000installment, $2,000, is taxable as interest in-received in installments, later.come.If the amount you collected for the accounts

Accelerated death benefits. You can ex-receivable was more than $12,000, you would Specified amount payable. If each install-clude from income accelerated death benefitsstill claim $2,772 as an estate tax deduction ment you receive under the insurance contractyou receive on the life of an insured individual ifbecause only the $12,000 actually reported on is a specific amount based on a guaranteed ratecertain requirements are met. Acceleratedthe estate tax return can be used in the above of interest, but the number of installments youdeath benefits are amounts received under a lifecomputation. However, if you collected less than will receive is uncertain, the part of each install-insurance contract before the death of the in-the $12,000 reported on the estate tax return, ment that you can exclude from income is thesured. These benefits also include amounts re-use the smaller amount to figure the estate tax amount held by the insurance company dividedceived on the sale or assignment of the contractdeduction. by the number of installments necessary to useto a viatical settlement provider. This exclusionup the principal and guaranteed interest in theapplies only if the insured was a terminally illcontract.Estates. The estate tax deduction allowed an individual or a chronically ill individual. This ex-

estate is figured in the same manner as just clusion does not apply if the insured is a director,Example. The face amount of the policy isdiscussed. However, any income in respect of a officer, employee, or has a financial interest, in

$200,000, and as beneficiary you choose todecedent received by the estate during the tax any trade or business carried on by you.receive annual installments of $12,000. Theyear is reduced by any such income that is

Terminally ill individual. A terminally ill in- insurer’s settlement option guarantees you thisproperly paid, credited, or required to be distrib-dividual is one who has been certified by a amount for 20 years based on a guaranteed rateuted by the estate to a beneficiary. The benefi-physician as having an illness or physical condi- of interest. It also provides that extra interestciary would include such distributed income intion that reasonably can be expected to result in may be credited to the principal balance accord-respect of a decedent for figuring thedeath in 24 months or less from the date of ing to the insurer’s earnings. The excludablebeneficiary’s deduction.certification. part of each guaranteed installment is $10,000

($200,000 ÷ 20 years). The balance of eachChronically ill individual. A chronically illSurviving annuitants. For the estate tax de- guaranteed installment, $2,000, is interest in-individual is one who has been certified as oneduction, an annuity received by a surviving an- come to you. The full amount of any additionalof the following.nuitant under a joint and survivor annuity payment for interest is income to you.contract is considered income in respect of a • An individual who, for at least 90 days, is

Installments for life. If, as the beneficiarydecedent. The deceased annuitant must have unable to perform at least two activities ofunder an insurance contract, you are entitled todied after the annuity starting date. You must daily living without substantial assistancereceive the proceeds in installments for the restmake a special computation to figure the estate due to a loss of functional capacity.of your life without a refund or period-certaintax deduction for the surviving annuitant. See • An individual who requires substantial su- guarantee, you figure the excluded part of eachsection 1.691(d)–1 of the regulations. pervision to be protected from threats to installment by dividing the amount held by the

health and safety due to severe cognitive insurance company by your life expectancy. IfGifts, Insurance, impairment. there is a refund or period-certain guarantee, theand Inheritances amount held by the insurance company for this

A certification must have been made by a purpose is reduced by the actuarial value of theProperty received as a gift, bequest, or inheri- licensed health care practitioner within the previ- guarantee.tance is not included in your income. However, if ous 12 months.property you receive in this manner later pro- Example. As beneficiary, you choose to re-Exclusion limited. If the insured was aduces income, such as interest, dividends, or ceive the $50,000 proceeds from a life insur-chronically ill individual, your exclusion of accel-rents, that income is taxable to you. The income ance cont ract under a l i fe - income-erated death benefits is limited to the cost youfrom property donated to a trust that is paid, with-cash-refund option. You are guaranteedincurred in providing qualified long-term carecredited, or distributed to you is taxable income $2,700 a year for the rest of your life (which isservices for the insured. In determining the costto you. If the gift, bequest, or inheritance is the estimated by use of mortality tables to be 25incurred, do not include amounts paid or reim-income from property, that income is taxable to years from the insured’s death). The actuarialbursed by insurance or otherwise. Subject toyou. value of the refund feature is $9,000. Thecertain limits, you can exclude payments re-

If you receive property from a decedent’s amount held by the insurance company, re-ceived on a periodic basis without regard to yourestate in satisfaction of your right to the income duced by the value of the guarantee, is $41,000costs.of the estate, it is treated as a bequest or inheri- ($50,000 − $9,000) and the excludable part oftance of income from property. See Distributions Insurance received in installments. If you each installment representing a return of princi-to Beneficiaries From an Estate, later. receive life insurance proceeds in installments, pal is $1,640 ($41,000 ÷ 25). The remaining

Page 12



$1,060 ($2,700 − $1,640) is interest income to parent or spouse, or the spouse of any of these purchase price and Diane paid $45,000. Underyou. If you should die before receiving the entire lineal descendants. local law, each had a half interest in the income$50,000, the refund payable to the refund bene- For more information on special-use valua- from the property. When Diane died, the FMV officiary is not taxable. tion, see Form 706. the property was $100,000. Depreciation deduc-

tions allowed before Diane’s death wereIncreased basis for special-use valuationInterest option on insurance. If an insurance $20,000. Dan’s basis in the property is $70,000property. Under certain conditions, some orcompany pays you interest only on proceeds figured as follows:all of the estate tax benefits obtained by usingfrom life insurance left on deposit, the interestthe special-use valuation will be subject to re-you are paid is taxable. One-half of cost basis (1/2 of $30,000capture. Generally, an additional estate tax must $60,000) . . . . . . . . . . . . . .be paid by the qualified heir if the property isFlexible premium contracts. A life insurance Interest acquired from Diane 50,000 $80,000disposed of, or is no longer used for a qualifying (1/2 of $100,000) . . . . . . . . .contract (including any qualified additional ben-

Minus: 1/2 of $20,000 depreciation . . . . 10,000purpose within 10 years of the decedent’s death.efits) is a flexible premium life insurance con-Dan’s basis . . . . . . . . . . . . . . . . . $70,000If you must pay any additional estate (recap-tract if it provides for the payment of one or more

ture) tax, you can elect to increase your basis inpremiums that are not fixed by the insurer as toMore information. See Publication 551, Ba-the special-use valuation property to its FMV onboth timing and amount. For a flexible premiumsis of Assets, for more information on basis. Ifthe date of the decedent’s death (or on thecontract issued before January 1, 1985, the pro-you and your spouse lived in a community prop-alternate valuation date, if it was elected by theceeds paid under the contract because of theerty state, see the discussion in that publicationpersonal representative). If you elect to increasedeath of the insured will be excluded from theabout figuring the basis of your community prop-your basis, you must pay interest on the recap-recipient’s income only if the contract meets theerty after your spouse’s death.ture tax for the period from the date 9 monthsrequirements explained under section 101(f) of

after the decedent’s death until the date you paythe Internal Revenue Code. Depreciation. If you can depreciate propertythe recapture tax.you inherited, you generally must use the modi-For more information on the recapture tax,fied accelerated cost recovery system (MACRS)see Instructions for Form 706–A.Basis of Inherited Propertyto determine depreciation.

For joint interests and qualified joint inter-S corporation stock. The basis of inherited SYour basis in property you inherit from a dece-ests, you must make the following computationscorporation stock must be reduced if there isdent is generally one of the following.to figure depreciation.income in respect of a decedent attributable to• The fair market value (FMV) of the prop- that stock. • The first computation is for your originalerty at the date of the individual’s death.

basis in the property.Joint interest. Figure the surviving tenant’s• The FMV on the alternate valuation date new basis of property that was jointly owned • The second computation is for the inher-(discussed in the instructions for Form (joint tenancy or tenancy by the entirety) by ited part of the property.706), if so elected by the personal repre- adding the surviving tenant’s original basis in thesentative for the estate. Continue depreciating your original basis underproperty to the value of the part of the property

the same method you had used in previous(one of the values described earlier) included in• The value under the special-use valuationyears. Depreciate the inherited part usingthe decedent’s estate. Subtract from the summethod for real property used in farmingMACRS.any deductions for wear and tear, such as de-or other closely held business (see

preciation or depletion, allowed to the survivingSpecial-use valuation, later), if so elected MACRS consists of two depreciation sys-tenant on that property.by the personal representative. tems, the General Depreciation System (GDS)

and the Alternative Depreciation System (ADS).• The decedent’s adjusted basis in land to Example. Fred and Anne Maple (brother For more information on MACRS, see Publica-the extent of the value excluded from the and sister) owned, as joint tenants with right of tion 946, How To Depreciate Property.decedent’s taxable estate as a qualified survivorship, rental property they purchased forconservation easement (discussed in the Substantial valuation misstatement. If the$60,000. Anne paid $15,000 of the purchaseinstructions for Form 706). value or adjusted basis of any property claimedprice and Fred paid $45,000. Under local law,

on an income tax return is 200% or more of theeach had a half interest in the income from theamount determined to be the correct amount,Exception for appreciated property. If you property. When Fred died, the FMV of the prop-there is a substantial valuation misstatement. Ifor your spouse gave appreciated property to an erty was $100,000. Depreciation deductions al-this misstatement results in an underpayment ofindividual during the 1-year period ending on the lowed before Fred’s death were $20,000.tax of more than $5,000, an addition to tax ofdate of that individual’s death and you (or your Anne’s basis in the property is $80,000 figured20% of the underpayment can apply. The pen-spouse) later acquired the same property from as follows:alty increases to 40% if the value or adjustedthe decedent, your basis in the property is the

Anne’s original basis . . . . . . $15,000 basis is 400% or more of the amount determinedsame as the decedent’s adjusted basis immedi-Interest acquired from Fred (3/4 to be the correct amount. If the value shown onately before death. 75,000 $90,000of $100,000) . . . . . . . . . . . the estate tax return is overstated and you useMinus: 1/2 of $20,000 depreciation . . . . 10,000Appreciated property. Appreciated prop- that value as your basis in the inherited property,Anne’s basis . . . . . . . . . . . . . . . . $80,000erty is property that had an FMV greater than its you could be liable for the addition to tax.

adjusted basis on the day it was transferred to The IRS may waive all or part of the additionQualified joint interest. One-half of thethe decedent. to tax if you have a reasonable basis for thevalue of property owned by a decedent andclaimed value. The fact that the adjusted basisSpecial-use valuation. If you are a qualified spouse as tenants by the entirety, or as jointon your income tax return is the same as theheir and you receive a farm or other closely tenants with right of survivorship if the decedentvalue on the estate tax return is not enough toheld business real property from the estate for and spouse are the only joint tenants, is includedshow that you had a reasonable basis to claimwhich the personal representative elected in the decedent’s gross estate. This is true re-the valuation.special-use valuation, the property is valued on gardless of how much each contributed toward

the basis of its actual use rather than its FMV. the purchase price. Holding period. If you sell or dispose of inher-If you are a qualified heir and you buy Figure the basis for a surviving spouse by ited property that is a capital asset, you have a

special-use valuation property from the estate, adding one-half of the property’s cost basis to long-term gain or loss from property held foryour basis is the estate’s basis (determined the value included in the gross estate. Subtract more than 1 year, regardless of how long youunder the special-use valuation method) imme- from this sum any deductions for wear and tear, held the property.diately before your purchase increased by any such as depreciation or depletion, allowed ongain recognized by the estate. Property distributed in kind. Your basis inthat property to the surviving spouse.

You are a qualified heir if you are an ances- property distributed in kind by a decedent’s es-tor (parent, grandparent, etc.), the spouse, or a Example. Dan and Diane Gilbert owned, as tate is the same as the estate’s basis immedi-lineal descendant (child, grandchild, etc.) of the tenants by the entirety, rental property they pur- ately before the distribution plus any gain, ordecedent, a lineal descendant of the decedent’s chased for $60,000. Dan paid $15,000 of the minus any loss, recognized by the estate. Prop-

Page 13



erty is distributed in kind if it satisfies your right to officer’s death. It also does not apply in the generally is figured in the same manner and onreceive another property or amount, such as the following circumstances. the same basis as for individuals, with certainincome of the estate or a specific dollar amount. differences in the computation of deductions• The death was caused by the intentionalProperty distributed in kind generally includes and credits, as explained later.misconduct of the officer or by the officer’sany noncash property you receive from the es- The estate’s income, like an individual’s in-intention to cause such death.tate other than the following. come, must be reported annually on either a

• The officer was voluntarily intoxicated at calendar or fiscal year basis. As the personal• A specific bequest (unless it must be dis- the time of death. representative, you choose the estate’s ac-tributed in more than three installments).counting period when you file its first Form 1041.• The officer was performing his or her du-• Real property, the title to which passes The estate’s first tax year can be any period thatties in a grossly negligent manner at the

directly to you under local law. ends on the last day of a month and does nottime of death.exceed 12 months.For information on an estate’s recognized gain

Once you choose the tax year, you generallyor loss on distributions in kind, see Income To Salary or wages. Salary or wages paid after cannot change it without IRS approval. Also, onInclude under Income Tax Return of an Es- the employee’s death are usually taxable in- the first income tax return, you must choose thetate—Form 1041, later. come to the beneficiary. See Wages, earlier, accounting method (cash, accrual, or other) youunder Specific Types of Income in Respect of a will use to report the estate’s income. Once youOther Items of Income Decedent. have used a method, you ordinarily cannot

change it without IRS approval. For a more com-Rollover distributions. An employee’s sur-Some other items of income that you, as a survi-plete discussion of accounting periods andviving spouse who receives an eligible rollovervor or beneficiary, may receive are discussedmethods, see Publication 538, Accounting Peri-distribution may roll it over tax free into an IRA, abelow. Lump-sum payments you receive as theods and Methods.qualified plan, a section 403 annuity, or a sectionsurviving spouse or beneficiary of a deceased

457 plan. A distribution to a beneficiary otheremployee may represent accrued salary pay-than the employee’s surviving spouse is not anments; distributions from employee profit-shar- Filing Requirementseligible rollover distribution and is subject to tax.ing, pension, annuity, and stock bonus plans; orIf the decedent was born before January 2, Every domestic estate with gross income ofother items that should be treated separately for1936, the beneficiary may be able to use op- $600 or more during a tax year must file a Formtax purposes. The treatment of these lump-sumtional methods to figure the tax on the distribu- 1041. If one or more of the beneficiaries of thepayments depends on what the payments repre-tion. For more information, see Publication 575, domestic estate are nonresident alien individu-sent.Pension and Annuity Income. als, the personal representative must file Form

If the decedent is a specified terrorist 1041, even if the gross income of the estate isPensions and annuities. For beneficiariesvictim (see Important Reminders), cer- less than $600.who receive pensions and annuities, see Publi-tain income received by the beneficiaryCAUTION

!A fiduciary for a nonresident alien estate withcation 575. For beneficiaries of federal Civilor the estate is not included in income. See

U.S. source income, including any income thatService employees or retirees, see PublicationPublication 3920.is effectively connected with the conduct of a721, Tax Guide to U.S. Civil Service Retirementtrade or business in the United States, must fileBenefits.Public safety officers. Special rules apply to Form 1040NR, U.S. Nonresident Alien Income

certain amounts received because of the death Inherited IRAs. If a person other than the Tax Return, as the income tax return of theof a public safety officer (law enforcement of- decedent’s spouse inherits the decedent’s tradi- estate. ficers, fire fighters, chaplains, ambulance crews, tional IRA or Roth IRA, that person cannot treat A nonresident alien who was a resident ofand rescue squads). the IRA as one established on his or her behalf. Puerto Rico, Guam, American Samoa, or the

If a distribution from a traditional IRA is fromThe provisions apply to a chaplain Commonwealth of the Northern Mariana Is-contributions that were deducted or from earn-killed in the line of duty after Septem- lands for the entire tax year will, for this pur-ings and gains in the IRA, it is fully taxableber 10, 2001. The chaplain must have pose, be treated as a resident alien of the UnitedCAUTION

!income. If there were nondeductible contribu-been responding to a fire, rescue, or police States.tions, an allocation between taxable and nontax-emergency as a member or employee of a fire orable income must be made. For information onpolice department.distributions from a Roth IRA, see the discus- Schedule K–1 (Form 1041)

Death benefits. The death benefit payable sion earlier under Income in Respect of a Dece-to eligible survivors of public safety officers who dent. The inherited IRA cannot be rolled over As personal representative, you must file a sep-die as a result of traumatic injuries sustained in into, or receive a rollover from, another IRA. No arate Schedule K–1 (Form 1041), or an accept-the line of duty is not included in either the deduction is allowed for amounts paid into that able substitute (described below), for eachbeneficiaries’ income or the decedent’s gross inherited IRA. For more information about IRAs, beneficiary. File these schedules with Formestate. The benefit is administered through the see Publication 590. 1041.Bureau of Justice Assistance (BJA). You must show each beneficiary’s taxpayerEstate income. Estates may have to pay fed-The BJA can pay the eligible survivors an identification number. A $50 penalty is chargederal income tax. Beneficiaries may have to payemergency interim benefit up to $3,000 if it de- for each failure to provide the identifying numbertax on their share of estate income. However,termines that a public safety officer’s death is of each beneficiary unless reasonable cause isthere is never a double tax. See Distributions toone for which a death benefit will probably be established for not providing it. When you as-Beneficiaries From an Estate, later.paid. If there is no final payment, the recipient of sume your duties as the personal representa-the interim benefit is liable for repayment. How- tive, you must ask each beneficiary to give you aever, the BJA may waive all or part of the repay- taxpayer identification number (TIN). A nonresi-ment if it will cause a hardship. If all or part of the dent alien beneficiary that gives you a withhold-Income Tax Returnrepayment is waived, that amount is not in- ing certificate generally must provide you with acluded in income. TIN (see Publication 515, Withholding of Tax onof an Estate—

Nonresident Aliens and Foreign Entities). A TINSurvivor benefits. Generally, a survivoris not required for an executor or administrator ofannuity received by the spouse, former spouse, Form 1041the estate unless that person is also a benefi-or child of a public safety officer killed in the lineciary.of duty is excluded from the recipient’s income. An estate is a taxable entity separate from the

The annuity must be provided under a govern- decedent and comes into being with the death of As personal representative, you must alsoment plan and is excludable to the extent that it the individual. It exists until the final distribution furnish a Schedule K–1 (Form 1041), or a sub-is attributable to the officer’s service as a public of its assets to the heirs and other beneficiaries. stitute, to the beneficiary by the date on whichsafety officer. The income earned by the assets during this the Form 1041 is filed. Failure to provide this

The exclusion does not apply if the period must be reported by the estate under the payee statement can result in a penalty of $50recipient’s actions were responsible for the conditions described in this publication. The tax for each failure. This penalty also applies if you

Page 14



omit information or include incorrect information ciary, you must file an amended Schedule K–1 graph, must also file the return that the domicili-on the payee statement. (Form 1041) and give a copy to each benefi- ary representative otherwise would have to file.

ciary. Check the Amended K–1 box at the top ofYou do not need prior approval for a substi-Schedule K–1.tute Schedule K–1 (Form 1041) that is an exact

Copy of the Willcopy of the official schedule or that follows thespecifications in Publication 1167, General

You do not have to file a copy of the decedent’sInformation ReturnsRules and Specifications for Substitute Formswill unless requested by the IRS. If requested,and Schedules. You must have prior approval

Even though you may not have to file an income you must attach a statement to it indicating thefor any other substitute Schedule K–1 (Formtax return for the estate, you may have to file provisions that, in your opinion, determine how1041).Form 1099–DIV, Form 1099– INT, or Form much of the estate’s income is taxable to the1099–MISC if you receive the income as a estate or to the beneficiaries. You should alsoBeneficiaries. The personal representativenominee or middleman for another person. For attach a statement signed by you under penal-has a fiduciary responsibility to the ultimate re-more information on filing information returns, ties of perjury that the will is a true and completecipients of the income and the property of thesee the General Instructions for Forms 1099, copy.estate. While the courts use a number of names1098, 5498, and W–2G.to designate specific types of beneficiaries or

You will not have to file information returnsthe recipients of various types of property, it is Income To Includefor the estate if the estate is the owner of recordsufficient in this publication to call all of themand you file an income tax return for the estate The estate’s taxable income generally is figuredbeneficiaries.on Form 1041 giving the name, address, and the same way as an individual’s income, except

Liability of the beneficiary. The income identifying number of each actual owner and as explained in the following discussions.tax liability of an estate attaches to the assets of furnish a completed Schedule K–1 (Form 1041)

If the decedent is a specified terroristthe estate. If the income is distributed or must be to each actual owner.victim (see Important Reminders), cer-distributed during the current tax year, the in-tain income received by the estate iscome is reportable by each beneficiary on his or CAUTION

!Penalty. A penalty of up to $50 can be

not included in income. See Publication 3920.her individual income tax return. If the income charged for each failure to file or failure to in-does not have to be distributed, and is not dis- Gross income of an estate consists of allclude correct information on an information re-tributed but is retained by the estate, the income items of income received or accrued during theturn. (Failure to include correct informationtax on the income is payable by the estate. If the tax year. It includes dividends, interest, rents,includes failure to include all the informationincome is distributed later without the payment royalties, gain from the sale of property, andrequired.) If it is shown that such failure is due toof the taxes due, the beneficiary can be liable for intentional disregard of the filing requirement, income from business, partnerships, trusts, andtax due and unpaid to the extent of the value of the penalty amount increases. any other sources. For a discussion of incomethe estate assets received. from dividends, interest, and other investmentSee the General Instructions for Forms

Income of the estate is taxed to either the income as well as gains and losses from the sale1099, 1098, 5498, and W–2G for more informa-estate or the beneficiary, but not to both. tion. of investment property, see Publication 550. For

a discussion of gains and losses from the sale ofNonresident alien beneficiary. As a resi-other property, including business property, seedent or domestic fiduciary, in addition to filing

Two or More Publication 544, Sales and Other Dispositions ofForm 1041, you may have to file the income taxPersonal Representatives Assets.return (Form 1040NR) and pay the tax for a

If, as the personal representative, your du-nonresident alien beneficiary. Depending upon If property is located outside the state in which ties include the operation of the decedent’s busi-a number of factors, you may or may not have to the decedent’s home was located, more than ness, see Publication 334. That publicationfile Form 1040NR for that beneficiary. For infor- one personal representative may be designated provides general information about the tax lawsmation on who must file Form 1040NR, see by the will or appointed by the court. The person that apply to a sole proprietorship.Publication 519, U.S. Tax Guide for Aliens. designated or appointed to administer the estateYou do not have to file the nonresident in the state of the decedent’s permanent home is

alien’s return and pay the tax if that beneficiary Income in respect of a decedent. As thecalled the domiciliary representative. The per-has appointed an agent in the United States to personal representative of the estate, you mayson designated or appointed to administer prop-file a federal income tax return. However, you receive income that the decedent would haveerty in a state other than that of the decedent’smust attach to the estate’s return (Form 1041) a reported had death not occurred. For an expla-permanent home is called an ancillary repre-copy of the document that appoints the nation of this income, see Income in Respect ofsentative.beneficiary’s agent. a Decedent under Other Tax Information, ear-

You also must file Form 1042, Annual With- lier. An estate may qualify to claim a deductionSeparate Forms 1041. Each representativeholding Tax Return for U.S. Source Income of for estate taxes if the estate must include inmust file a separate Form 1041 with the appro-Foreign Persons, and Form 1042–S, Foreign gross income for any tax year an amount ofpriate IRS office for the representative’s loca-Person’s U.S. Source Income Subject to With- income in respect of a decedent. See Estate Taxtion. The domiciliary representative mustholding, to report and transmit withheld tax on Deduction, earlier, under Other Tax Information.include the estate’s entire income in the return.distributable net income (discussed later) actu- The ancillary representative should provide theally distributed. This applies to the extent the Gain (or loss) from sale of property. Duringfollowing information on the return.distribution consists of an amount subject to the administration of the estate, you may find it• The name and address of the domiciliarywithholding. For more information, see Publica- necessary or desirable to sell all or part of the

representative.tion 515. estate’s assets to pay debts and expenses ofadministration, or to make proper distributions of• The amount of gross income received bythe assets to the beneficiaries. While you maythe ancillary representative.

Amended Return have the legal authority to dispose of the prop-• The deductions claimed against that in- erty, title to it may be vested (given a legalIf you have to file an amended Form 1041, use a come (including any income properly paid interest in the property) in one or more of thecopy of the form for the appropriate year and or credited by the ancillary representative beneficiaries. This is usually true of real prop-check the Amended return box. Complete the to a beneficiary).erty. To determine whether any gain or lossentire return, correct the appropriate lines withmust be reported by the estate or by the benefi-the new information, and refigure the tax liability. Estate of a nonresident alien. If the estateciaries, consult local law to determine the legalOn an attached sheet, explain the reason for the of a nonresident alien has a nonresident alienowner.changes and identify the lines and amounts domiciliary representative and an ancillary rep-

changed. Redemption of stock to pay death taxes.resentative who is a citizen or resident of theUnder certain conditions, a distribution to aIf the amended return results in a change to United States, the ancillary representative, inshareholder (including the estate) in redemptionincome, or a change in distribution of any in- addition to filing a Form 1040NR to provide theof stock that was included in the decedent’scome or other information provided to a benefi- information described in the preceding para-

Page 15



gross estate may be allowed capital gain (or death (or on the alternate valuation date if it was Under the related persons rules, youloss) treatment. cannot claim a loss for property distrib-elected).

uted to a beneficiary unless the distri-CAUTION!

Character of asset. The character of an Qualified heirs. Qualified heirs include the bution is in discharge of a pecuniary bequest.asset in the hands of an estate determines decedent’s ancestors (parents, grandparents, Also, any gain on the distribution of depreciablewhether gain or loss on its sale or other disposi- etc.) and spouse, the decedent’s lineal descend- property is ordinary income.tion is capital or ordinary. The asset’s character ants (children, grandchildren, etc.) and theirdepends on how the estate holds or uses it. If it spouses, and lineal descendants (and theirwas a capital asset to the decedent, it generally Exemptionspouses) of the decedent’s parents or spouse.will be a capital asset to the estate. If it was land For more information about special-use valu- and Deductionsor depreciable property used in the decedent’s ation, see Form 706 and its instructions.business and the estate continues the business, In figuring taxable income, an estate is generallyit generally will have the same character to the allowed the same deductions as an individual.Gain from transfer of property to a politicalestate that it had in the decedent’s hands. If it Special rules, however, apply to some deduc-organization. Appreciated property trans-was held by the decedent for sale to customers, tions for an estate. This section includes discus-ferred to a political organization is treated asit generally will be considered to be held for sale sions of those deductions affected by the specialsold by the estate. Appreciated property is prop-to customers by the estate if the decedent’s rules.erty that has a fair market value (on the date ofbusiness continues to operate during the admin- the transfer) greater than the estate’s basis. Theistration of the estate. gain recognized is the difference between the Exemption DeductionAn estate and a beneficiary of that es- estate’s basis and the fair market value on the

tate are generally treated as related date transferred. An estate is allowed an exemption deduction ofpersons for purposes of treating the A political organization is any party, commit-CAUTION

!$600 in figuring its taxable income. No exemp-

gain on the sale of depreciable property be- tee, association, fund, or other organization tion for dependents is allowed to an estate. Eventween the parties as ordinary income. This does formed and operated to accept contributions or though the first return of an estate may be for anot apply to a sale or exchange made to satisfy a make expenditures for influencing the nomina- period of less than 12 months, the exemption ispecuniary bequest. tion, election, or appointment of an individual to $600. If, however, the estate was given permis-

any federal, state, or local public office. sion to change its accounting period, the exemp-Holding period. An estate (or other recipi-tion is $50 for each month of the short year.ent) that acquires a capital asset from a dece-

Gain or loss on distributions in kind. Andent and sells or otherwise disposes of it isestate recognizes gain or loss on a distributionconsidered to have held that asset for more than

Contributionsof property in kind to a beneficiary only in the1 year, regardless of how long the asset is held.following situations.

An estate qualifies for a deduction for amountsBasis of asset. The basis used to figureof gross income paid or permanently set asidegain or loss for property the estate receives from 1) The distribution satisfies the beneficiary’sfor qualified charitable organizations. The ad-the decedent usually is its fair market value at right to receive either—justed gross income limits for individuals do notthe date of death. See Basis of Inherited Prop-

a) A specific dollar amount (whether pay- apply. However, to be deductible by an estate,erty under Other Tax Information, earlier, forable in cash, in unspecified property, or the contribution must be specifically provided forother basis in inherited property.in both), or in the decedent’s will. If there is no will, or if theIf the estate purchases property after the

will makes no provision for the payment to adecedent’s death, the basis generally will be its b) A specific property other than the prop-cost. charitable organization, then a deduction will noterty distributed.

The basis of certain appreciated property the be allowed even though all of the beneficiariesestate receives from the decedent will be the may agree to the gift.2) You choose to recognize the gain or lossdecedent’s adjusted basis in the property imme- You cannot deduct any contribution from in-on the estate’s income tax return (sectiondiately before death. This applies if the property come not included in the estate’s gross income.643(e)(3) election).was acquired by the decedent as a gift during If the will specifically provides that the contribu-

The gain or loss is usually the difference be-the 1-year period before death, the property’s tions are to be paid out of the estate’s grosstween the fair market value of the propertyfair market value on the date of the gift was income, the contributions are fully deductible.

greater than the donor’s adjusted basis, and the when distributed and the estate’s basis in the However, if the will contains no specific provi-proceeds of the sale of the property are distrib- property. However, see Gain from sale of sions, the contributions are considered to haveuted to the donor (or the donor’s spouse). special-use valuation property, earlier, for a been paid and are deductible in the same pro-

limit on the gain recognized on a transfer of portion as the gross income bears to the total ofSchedule D (Form 1041). To report gainssuch property to a qualified heir. all classes (taxable and nontaxable) of income.(and losses) from the sale or exchange of capital

If you choose to recognize gain or loss, the You cannot deduct a qualified conservationassets by the estate, file Schedule D (Formchoice applies to all noncash distributions during easement granted after the date of death and1041), Capital Gains and Losses, with Formthe tax year except charitable distributions and before the due date of the estate tax return. A1041. For additional information about the treat-specific bequests. To make the choice, reportment of capital gains and losses, see the instruc- contribution deduction is allowed to the estatethe transaction on Schedule D (Form 1041) at-tions for Schedule D (Form 1041). for estate tax purposes.tached to the estate’s Form 1041 and check the For more information about contributions,Installment obligations. If an installment ob- box on line 7 in the Other Information section of see Publication 526, Charitable Contributions,ligation owned by the decedent is transferred by Form 1041. You must make the choice by the and Publication 561, Determining the Value ofthe estate to the obligor (buyer or person obli- due date (including extensions) of the estate’s Donated Property.gated to pay) or is canceled at death, include the income tax return for the year of distribution.

income from that event in the gross income of However, if you timely filed your return for thethe estate. See Installment obligations under year without making the choice, you can still LossesIncome in Respect of the Decedent, earlier. See make the choice by filing an amended returnPublication 537 for information about installment within six months of the due date of the return Generally, an estate can claim a deduction for asales. (excluding extensions). Attach Schedule D loss it sustains on the sale of property. This

(Form 1041) to the amended return and write includes a loss from the sale of property (otherGain from sale of special-use valuation prop-“Filed pursuant to section 301.9100–2” on the than stock) to a personal representative of theerty. If you elected special-use valuation forform. File the amended return at the same ad- estate, unless that person is a beneficiary of thefarm or other closely held business real propertydress you filed the original return. You must get estate.and that property is sold to a qualified heir, thethe consent of the IRS to revoke the choice. For a discussion of an estate’s recognizedestate will recognize gain on the sale if the fair

For more information, see Property distrib- loss on a distribution of property in kind to amarket value on the date of the sale exceeds theuted in kind under Distributions Deduction, later.fair market value on the date of the decedent’s beneficiary, see Income To Include, earlier.

Page 16



An estate and a beneficiary of that es- waiver procedure also applies to casualty losses Capital gains. Capital gains ordinarily aretate are generally treated as related incurred during administration of the estate. not included in distributable net income. How-persons for purposes of the disallow- ever, you include them in distributable net in-CAUTION

!Accrued expenses. The rules preventingance of a loss on the sale of an asset between come if any of the following apply.double deductions do not apply to deductions forrelated persons. The disallowance does not ap-taxes, interest, business expenses, and other • The gain is allocated to income in the ac-ply to a sale or exchange made to satisfy aitems accrued at the date of death. These ex- counts of the estate or by notice to thepecuniary bequest.penses are allowable as a deduction for estate beneficiaries under the terms of the will ortax purposes as claims against the estate and by local law.Net operating loss deduction. An estate canalso are allowable as deductions in respect of aclaim a net operating loss deduction, figured in • The gain is allocated to the corpus or prin-decedent for income tax purposes. Deductionsthe same way as an individual’s, except that it cipal of the estate and is actually distrib-for interest, business expenses, and other itemscannot deduct any distributions to beneficiaries uted to the beneficiaries during the taxnot accrued at the date of the decedent’s death(discussed later) or the deduction for charitable year.are allowable only as a deduction for administra-contributions in figuring the loss or the loss car-tion expenses for both estate and income tax • The gain is used, under either the terms ofryover. For a discussion of the carryover of anpurposes and do not qualify for a double deduc- the will or the practice of the personal rep-unused net operating loss to a beneficiary upontion. resentative, to determine the amount thattermination of the estate, see Termination of

is distributed or must be distributed.Estate, later. Expenses allocable to tax-exempt income.For information on net operating losses, see When figuring the estate’s taxable income on • Charitable contributions are made out of

Publication 536. Form 1041, you cannot deduct administration capital gains.expenses allocable to any of the estate’s tax-ex-

Casualty and theft losses. Losses incurred empt income. However, you can deduct these Generally, when you determine capital gainsfrom casualties and thefts during the administra- administration expenses when figuring the tax- to be included in distributable net income, thetion of the estate can be deducted only if they able estate for federal estate tax purposes on exclusion for gain from the sale or exchange ofhave not been claimed on the federal estate tax Form 706. qualified small business stock is not taken intoreturn (Form 706). You must file a statementaccount.Interest on estate tax. Interest paid on install-with the estate’s income tax return waiving the

ment payments of estate tax is not deductible fordeduction for estate tax purposes. See Adminis- Capital losses. Capital losses are excludedincome or estate tax purposes.tration Expenses, later. in figuring distributable net income unless they

The same rules that apply to individuals ap- enter into the computation of any capital gainply to the estate, except that in figuring the that is distributed or must be distributed during

Depreciation and Depletionadjusted gross income of the estate used to the year.figure the deductible loss, you deduct any ad-

The allowable deductions for depreciation and Tax-exempt interest. Tax-exempt interest,ministration expenses claimed. Use Form 4684,depletion that accrue after the decedent’s death including exempt-interest dividends, though ex-Casualties and Thefts, and its instructions tomust be apportioned between the estate and the cluded from the estate’s gross income, is in-figure any loss deduction.beneficiaries, depending on the income of the cluded in the distributable net income, but is

Carryover losses. Carryover losses resulting estate that is allocable to each. reduced by the following items.from net operating losses or capital losses sus-

• The expenses that were not allowed intained by the decedent before death cannot be Example. In 2003, the decedent’s estate re-computing the estate’s taxable income be-deducted on the estate’s income tax return. alized $3,000 of business income during thecause they were attributable to tax-exemptadministration of the estate. The personal repre-interest (see Expenses allocable to tax-ex-sentative distributed $1,000 of the income to theempt income under Administration Ex-Administration Expenses decedent’s son Ned and $2,000 to another son,penses, earlier).Bill. The allowable depreciation on the business

Expenses of administering an estate can be property is $300. Ned can take a deduction of • The part of the tax-exempt interestdeducted either from the gross estate in figuring $100 [($1,000 ÷ $3,000) × $300], and Bill can deemed to have been used to make athe federal estate tax on Form 706 or from the take a deduction of $200 [($2,000 ÷ $3,000) × charitable contribution. See Contributions,estate’s gross income in figuring the estate’s $300]. earlier.income tax on Form 1041. However, these ex-penses cannot be claimed for both estate tax

The total tax-exempt interest earned by anand income tax purposes. In most cases, this Distributions Deduction estate must be shown in the Other Informationrule also applies to expenses incurred in the salesection of Form 1041. The beneficiary’s part ofof property by an estate (not as a dealer). An estate is allowed a deduction for the tax yearthe tax-exempt interest is shown on ScheduleTo prevent a double deduction, amounts oth- for any income that must be distributed currentlyK–1 (Form 1041).erwise allowable in figuring the decedent’s tax- and for other amounts that are properly paid,

able estate for federal estate tax on Form 706 credited, or required to be distributed to benefi-Separate shares rule. The separate shareswill not be allowed as a deduction in figuring the ciaries. The deduction is limited to the distribut-rule must be used if both of the following areincome tax of the estate or of any other person able net income of the estate.true.unless the personal representative files a state- For special rules that apply in figuring the

ment, in duplicate, that the items of expense, as estate’s distribution deduction, see Bequest • The estate has more than one beneficiary.listed in the statement, have not been claimed under Distributions to Beneficiaries From an Es-

• The economic interest of a beneficiaryas deductions for federal estate tax purposes tate, later.does not affect and is not affected by theand that all rights to claim such deductions are

Distributable net income. Distributable net economic interest of another beneficiary.waived. One deduction or part of a deductionincome (determined on Schedule B of Formcan be claimed for income tax purposes if the A bequest of a specific sum of money or of1041) is the estate’s income available for distri-appropriate statement is filed, while another de- property is not a separate share (see Bequest,bution. It is the estate’s taxable income, with theduction or part is claimed for estate tax pur- later).following modifications.poses. Claiming a deduction in figuring the

If the separate shares rule applies, the sepa-estate income tax is not prevented when the Distributions to beneficiaries. Distribu-rate shares are treated as separate estates forsame deduction is claimed on the estate tax tions to beneficiaries are not deducted.the sole purpose of determining the distributablereturn so long as the estate tax deduction is not

Estate tax deduction. The deduction for net income allocable to a share. Each share’sfinally allowed and the preceding statement isestate tax on income in respect of the decedent distributable net income is based on that share’sfiled. The statement can be filed with the incomeis not allowed. portion of gross income and any applicable de-tax return or at any time before the expiration of

ductions or losses. You must use a reasonablethe statute of limitations that applies to the tax Exemption deduction. The exemption de-and equitable method to make the allocations.year for which the deduction is sought. This duction is not allowed.

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Generally, gross income is allocated among ues, Judy’s distributable net income includes Interest in real estate. The value of an inter-$22,500 ($150,000/$600,000 X $90,000) of the est in real estate owned by a decedent, title tothe separate shares based on the income eachincome in respect of a decedent and Ann’s dis- which passes directly to the beneficiaries undershare is entitled to under the will or applicabletributable net income includes $67,500 local law, is not included as any other amountlocal law. This includes gross income not re-($450,000/$600,000 X $90,000). paid, credited, or required to be distributed.ceived in cash, such as a distributive share of

partnership tax items. Property distributed in kind. If an estate dis-Income that must be distributed currently.If a beneficiary is not entitled to any of the tributes property in kind, the estate’s deductionThe distributions deduction includes any income

estate’s income, the distributable net income for ordinarily is the lesser of its basis in the propertythat, under the terms of the decedent’s will or bythat beneficiary is zero. The estate cannot de- or the property’s fair market value when distrib-reason of local law, must be distributed cur-duct any distribution made to that beneficiary uted. However, the deduction is the property’srently. This includes an amount that may be paidand the beneficiary does not have to include the fair market value if the estate recognizes gain onout of income or corpus (such as an annuity) todistribution in its gross income. However, see the distribution. See Gain or loss on distributionsthe extent it is paid out of income for the tax year.Income in respect of a decedent, later in this in kind under Income To Include, earlier.The deduction is allowed to the estate even if thediscussion. Property is distributed in kind if it satisfies thepersonal representative does not make the dis-

beneficiary’s right to receive another property ortribution until a later year or makes no distribu-Example. Patrick’s will directs you, the ex- amount, such as the income of the estate or ation until the final settlement and termination of

ecutor, to distribute ABC Corporation stock and specific dollar amount. It generally includes anythe estate.all dividends from that stock to his son, Edward, noncash distribution other than the following.

Support allowances. The distribution de-and the residue of the estate to his son, Michael.• A specific bequest (unless it must be dis-duction includes any support allowance that,The estate has two separate shares consisting

tributed in more than three installments).under a court order or decree or local law, theof the dividends on the stock left to Edward andestate must pay the decedent’s survivingthe residue of the estate left to Michael. The • Real property, the title to which passesspouse or other dependent for a limited perioddistribution of the ABC Corporation stock quali- directly to the beneficiary under local law.during administration of the estate. The allow-fies as a bequest, so it is not a separate share.ance is deductible as income that must be dis-If any distributions, other than the ABC Cor-

Character of amounts distributed. If thetributed currently or as any other amount paid,poration stock, are made during the year todecedent’s will or local law does not provide forcredited, or required to be distributed, as dis-either Edward or Michael, you must determinethe allocation of different classes of income, youcussed next.the distributable net income for each separatemust treat the amount deductible for distribu-share. The distributable net income for Edward’s Any other amount paid, credited, or required tions to beneficiaries as consisting of the sameseparate share includes only the dividends at- to be distributed. Any other amount paid, proportion of each class of items entering intotributable to the ABC Corporation stock. The credited, or required to be distributed is allowed the computation of distributable net income as

distributable net income for Michael’s separate as a deduction to the estate only in the year the total of each class bears to the total distribut-share includes all other income. actually paid, credited, or distributed. If there is able net income. For more information about the

no specific requirement by local law or by theIncome in respect of a decedent. This in- character of distributions, see Character of Dis-terms of the will that income earned by thecome is allocated among the separate shares tributions under Distributions to Beneficiariesestate during administration be distributed cur-that could potentially be funded with these From an Estate, later.rently, a deduction for distributions to the benefi-amounts, even if the share is not entitled tociaries will be allowed to the estate, but only for Example. An estate has distributable net in-receive any income under the will or applicablethe actual distributions during the tax year. come of $2,000, consisting of $1,000 of taxablelocal law. This allocation is based on the relative

If the personal representative has discretion interest and $1,000 of rental income. Distribu-value of each share that could potentially beas to when the income is distributed, the deductions to the beneficiary total $1,500. The distri-funded with these amounts.tion is allowed only in the year of distribution. bution deduction consists of $750 of taxable

The personal representative can elect toExample 1. Frank’s will directs you, the ex- interest and $750 of rental income, unless thetreat distributions paid or credited within 65 daysecutor, to divide the residue of his estate (valued will or local law provides a different allocation.after the close of the estate’s tax year as havingat $900,000) equally between his two children,

Limit on deduction for distributions. Youbeen paid or credited on the last day of that taxJudy and Ann. Under the will, you must fundcannot deduct any amount of distributable netyear. The election is made by completing line 6Judy’s share first with the proceeds of Frank’sincome not included in the estate’s gross in-in the Other Information section of Form 1041. Iftraditional IRA. The $90,000 balance in the IRAcome.a tax return is not required, the election is madewas distributed to the estate during the year.

on a statement filed with the IRS office whereThis amount is included in the estate’s gross Example. An estate has distributable net in-the return would have been filed. The election isincome as income in respect of a decedent and come of $2,000, consisting of $1,000 of divi-irrevocable for the tax year and is only effectiveis allocated to the corpus of the estate. The dends and $1,000 of tax-exempt interest.for the year of the election.estate has two separate shares, one for the Distributions to the beneficiary total $1,500. Ex-benefit of Judy and one for the benefit of Ann. If Alimony and separate maintenance. Ali- cept for this rule, the distribution deductionany distributions are made to either Judy or Ann mony and separate maintenance payments that would be $1,500 ($750 of dividends and $750 ofduring the year, then, for purposes of determin- must be included in the spouse’s or former tax-exempt interest). However, as the result ofing the distributable net income for each sepa- spouse’s income may be deducted as income this rule, the distribution deduction is limited torate share, the $90,000 of income in respect of a that must be distributed currently if they are paid, $750, because no deduction is allowed for thedecedent must be allocated only to Judy’s credited, or distributed out of the income of the tax-exempt interest distributed.share. estate for the tax year. That spouse or former

Denial of double deduction. A deductionspouse is treated as a beneficiary.Example 2. Assume the same facts as in cannot be claimed twice. If an amount is consid-

Example 1, except that you must fund Judy’s Payment of beneficiary’s obligations. Any ered to have been distributed to a beneficiary ofshare first with DEF Corporation stock valued at payment made by the estate to satisfy a legal an estate in a preceding tax year, it cannot again$300,000, rather than the IRA proceeds. To de- obligation of any person is deductible as income be included in figuring the deduction for the yeartermine the distributable net income for each that must be distributed currently or as any other of the actual distribution.separate share, the $90,000 of income in re- amount paid, credited, or required to be distrib-spect of a decedent must be allocated between uted. This includes a payment made to satisfy Example. The decedent’s will provides thatthe two shares to the extent they could poten- the person’s obligation under local law to sup- the estate must distribute currently all of its in-tially be funded with that income. The maximum port another person, such as the person’s minor come to a beneficiary. For administrative conve-amount of Judy’s share that could be funded child. The person whose obligation is satisfied is nience, the personal representative did notwith that income is $150,000 ($450,000 value of treated as a beneficiary of the estate. make a distribution of a part of the income for theshare less $300,000 funded with stock). The This does not apply to a payment made to tax year until the first month of the next tax year.maximum amount of Ann’s share that could be satisfy a person’s obligation to pay alimony or The amount must be deducted by the estate infunded is $450,000. Based on the relative val- separate maintenance. the first tax year, and must be included in the

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income of the beneficiary in that year. This ule I (Form 1041), Alternative Minimum Tax. Name, Address,amount cannot be deducted again by the estate Certain credits may be limited by any tentative and Signaturein the following year when it is paid to the benefi- minimum tax figured on line 54, Part III of Sched-ciary, nor must the beneficiary again include the ule I (Form 1041), even if there is no alternative In the top space of the name and address areaamount in income in that year. minimum tax liability. of Form 1041, enter the exact name of the estate

If the estate takes a deduction for distribu- used to apply for the estate’s employer identifi-Charitable contribution. The amount of a tions to beneficiaries, complete Part I and Part II cation number. In the remaining spaces, entercharitable contribution used as a deduction by of Schedule I even if the estate does not owe the name and address of the personal represen-the estate in determining taxable income cannot alternative minimum tax. Allocate the income tative (fiduciary) of the estate.be claimed again as a deduction for a distribu- distribution deduction figured on a minimum taxtion to a beneficiary. basis among the beneficiaries and report each

Signature. The personal representative (or itsbeneficiary’s share on Schedule K–1 (Formauthorized officer if the personal representative1041). Also, show each beneficiary’s share ofFuneral and Medical Expenses is not an individual) must sign the return. Anany adjustments or tax preference items for de-individual who prepares the return for pay mustpreciation, depletion, and amortization.No deduction can be taken for funeral expensessign the return as preparer. You can check a boxFor more information, see the instructions foror medical and dental expenses on the estate’sin the signature area that authorizes the IRS toForm 1041.income tax return, Form 1041.contact that paid preparer for certain informa-

Funeral expenses. Funeral expenses paid by tion. See the instructions for Form 1041 for morethe estate are not deductible in figuring the information.Paymentsestate’s taxable income on Form 1041. They are

The estate’s income tax liability must be paid indeductible only for determining the taxable es- When and Where To Filefull when the return is filed. You may have to paytate for federal estate tax purposes on Formestimated tax, however, as explained below.706. When you file Form 1041 (or Form 1040NR if it

applies) depends on whether you choose a cal-Medical and dental expenses of a decedent. Estimated tax. Estates with tax years ending endar year or a fiscal year as the estate’s ac-The medical and dental expenses of a decedent 2 or more years after the date of the decedent’s counting period. Where you file Form 1041paid by the estate are not deductible in figuring death must pay estimated tax in the same man- depends on where you, as the personal repre-the estate’s taxable income on Form 1041. You ner as individuals. sentative, live or have your principal office.can deduct them in figuring the taxable estate for If you must make estimated tax payments forfederal estate tax purposes on Form 706. If 2004, use Form 1041–ES, Estimated Income When to file. If you choose the calendar yearthese expenses are paid within the 1-year pe- Tax for Estates and Trusts, to determine the as the estate’s accounting period, the Formriod beginning with the day after the decedent’s estimated tax to be paid.

1041 for 2003 is due by April 15, 2004 (June 15,death, you can elect to deduct them on the Generally, you must pay estimated tax if the 2004, in the case of Form 1040NR for a nonresi-decedent’s income tax return (Form 1040) for estate is expected to owe, after subtracting anydent alien estate that does not have an office inthe year in which they were incurred. See Medi- withholding and credits, at least $1,000 in tax for

cal Expenses under Final Return for Decedent, the United States). If you choose a fiscal year,2004. You will not, however, have to pay esti-earlier. the Form 1041 is due by the 15th day of the 4thmated tax if you expect the withholding and

month (6th month in the case of Form 1040NR)credits to be at least:after the end of the tax year. If the due date is aCredits, Tax,Saturday, Sunday, or legal holiday, the form1) 90% of the tax to be shown on the 2004and Paymentsmust be filed by the next business day.return, or

This section includes brief discussions of some Extension of time to file. An extension of2) 100% of the tax shown on the 2003 returnof the tax credits, types of taxes that may be time to file Form 1041 may be granted if you(assuming the return covered all 12owed, and estimated tax payments reported on have clearly described the reasons that willmonths).the estate’s income tax return, Form 1041. cause your delay in filing the return. Use FormThe percentage in (2) above is 110% if the

2758, Application for Extension of Time To Fileestate’s 2003 adjusted gross income (AGI) wasCertain Excise, Income, Information, and Othermore than $150,000. To figure the estate’s AGI,CreditsReturns, to request an extension. The extensionsee the instructions for line 15b, Form 1041.is not automatic, so you should request it earlyEstates generally are allowed some of the same The general rule is that you must make yourenough for the IRS to act on the applicationtax credits that are allowed to individuals. The first estimated tax payment by April 15, 2004.before the regular due date of Form 1041. Youcredits generally are allocated between the es- You can either pay all of your estimated tax atshould file Form 2758 in duplicate with the IRState and the beneficiaries. However, estates are that time or pay it in four equal amounts that areoffice where you must file Form 1041.not allowed the credit for the elderly or the dis- due by April 15, 2004; June 15, 2004; Septem-

abled, the child tax credit, or the earned income Generally, an extension of time to file a re-ber 15, 2004; and January 17, 2005. For excep-credit discussed earlier under Final Return for turn does not extend the time for payment oftions to the general rule, see the instructions forDecedent. tax due. You must pay the total income taxForm 1041–ES and Publication 505, Tax With-

estimated to be due on Form 1041 in full by theholding and Estimated Tax.Foreign tax credit. The foreign tax credit isregular due date of the return. For additionalIf your return is on a fiscal year basis, yourdiscussed in Publication 514, Foreign Tax Credit

due dates are the 15th day of the 4th, 6th, and information, see the instructions for Form 2758.for Individuals.9th months of your fiscal year and the 1st month

General business credit. The general busi- of the following fiscal year. If any of these dates Where to file. As the personal representativeness credit is available to an estate that is in- fall on a Saturday, Sunday, or legal holiday, the of an estate, file the estate’s income tax returnvolved in a business. For more information, see payment must be made by the next business (Form 1041) with the Internal Revenue ServicePublication 334. day. center for the state where you live or have your

You may be charged a penalty for not paying principal place of business. A list of the statesenough estimated tax or for not making the pay- and addresses that apply is in the instructionsTax ment on time in the required amount (even if you for Form 1041.have an overpayment on your tax return). You You must send Form 1040NR to the InternalAn estate cannot use the Tax Table that appliescan use Form 2210, Underpayment of Esti- Revenue Service Center, Philadelphia, PAto individuals. The tax rate schedule to use is inmated Tax by Individuals, Estates, and Trusts, 19255.the instructions for Form 1041.to figure any penalty, or you can let the IRS

Electronic filing. Form 1041 can be filedfigure the penalty.Alternative minimum tax (AMT). An estateelectronically or on magnetic media. See theFor more information, see the instructions formay be liable for the alternative minimum tax. Toinstructions for Form 1041 for more information.Form 1041–ES and Publication 505.figure the alternative minimum tax, use Sched-

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The following are examples of othera year is currently distributable out of income toamounts distributed.his brother, Fred, and an annuity of $3,000 is toDistributions

be paid to his sister, Sharon, out of income or • Distributions made at the discretion of theto Beneficiaries corpus. Capital gains are allocable to corpus, personal representative.but all expenses are to be charged against in-From an Estate • Distributions required by the terms of thecome. Last year, the estate had income of

will upon the happening of a specific$6,000 and expenses of $3,000. The personalIf you are the beneficiary of an estate that must event.representative paid the $500 to the Communitydistribute all its income currently, you must re-

Chest and made the distributions to Fred and • Annuities that must be paid in any event,port your share of the distributable net incomeSharon as required by the will. but only out of corpus (principal).whether or not you have actually received it.

The estate’s distributable net income (fig-If you are the beneficiary of an estate that • Distributions of property in kind as definedured before the charitable contribution) isdoes not have to distribute all its income cur- earlier in Distributions Deduction under

rently, you must report all income that must be $3,000. The currently distributable income totals Income Tax Return of an Estate—Formdistributed to you (whether or not actually dis- $2,500 ($2,000 to Fred and $500 to Sharon). 1041.tributed) plus all other amounts paid, credited, or The income available for Sharon’s annuity is • Distributions required for the support ofrequired to be distributed to you, up to your only $500 because the will requires that the the decedent’s surviving spouse or othershare of distributable net income. As explained charitable contribution be paid out of current dependent for a limited period, but onlyearlier in Distributions Deduction under Income income. The $2,500 treated as distributed cur- out of corpus (principal).Tax Return of an Estate—Form 1041, for an rently is less than the $3,000 distributable netamount to be currently distributable income, If an estate distributes property in kind, theincome (before the contribution), so Fred mustthere must be a specific requirement for current amount of the distribution ordinarily is the lesserinclude $2,000 in his gross income and Sharondistribution either under local law or the terms of of the estate’s basis in the property or themust include $500 in her gross income.the decedent’s will. If there is no such require- property’s fair market value when distributed.ment, the income is reportable only when distrib- However, the amount of the distribution is theExample 2. Assume the same facts as inuted. property’s fair market value if the estate recog-Example 1 except that the estate has an addi-If the estate has more than one beneficiary, nizes gain on the distribution. See Gain or losstional $1,000 of administration expenses, com-the separate shares rule discussed earlier under on distributions in kind in the discussion Incomemissions, etc., that are chargeable to corpus.Distributions Deduction may have to be used to To Include under Income Tax Return of an Es-The estate’s distributable net income (figureddetermine the distributable net income allocable tate—Form 1041, earlier.before the charitable contribution) is now $2,000to each beneficiary. The beneficiaries in the ex-

($3,000 − $1,000 additional expense). Theamples shown next do not meet the require- Example. The terms of Michael Scott’s willments of the separate shares rule. amount treated as currently distributable income require the distribution of $2,500 of income an-

is still $2,500 ($2,000 to Fred and $500 to nually to his wife, Susan. If any income remains,Sharon). The $2,500, treated as distributed cur-Income That Must Be it may be accumulated or distributed to his tworently, is more than the $2,000 distributable net children, Joe and Alice, in amounts at the discre-Distributed Currentlyincome, so Fred has to include only $1,600 tion of the personal representative. The per-

Beneficiaries who are entitled to receive cur- [($2,000 ÷ $2,500) × $2,000] in his gross income sonal representative also may invade the corpusrently distributable income generally must in- and Sharon has to include only $400 [($500 ÷ (principal) for the benefit of Scott’s wife andclude in gross income the entire amount due $2,500) × $2,000] in her gross income. Fred and children.them. However, if the currently distributable in- Sharon are beneficiaries of amounts that must Last year, the estate had income of $6,000come is more than the estate’s distributable net be distributed currently, so they do not benefit after deduction of all expenses. Its distributableincome figured without deducting charitable from the reduction of distributable net income by net income is also $6,000. The personal repre-contributions, each beneficiary must include in the charitable contribution deduction. sentative distributed the required $2,500 of in-gross income a ratable part of the distributable come to Susan. In addition, the personalnet income.

representative distributed $1,500 each to JoeOther Amountsand Alice and an additional $2,000 to Susan.Example. Under the terms of the will of Ger- Distributed

Susan includes in her gross income theald Peters, $5,000 a year is to be paid to his$2,500 of currently distributable income. TheAny other amount paid, credited, or required towidow and $2,500 a year is to be paid to hisother amounts distributed totaled $5,000be distributed to the beneficiary for the tax yeardaughter out of the estate’s income during the($1,500 + $1,500 + $2,000) and are includible inalso must be included in the beneficiary’s grossperiod of administration. There are no charitablethe income of Susan, Joe, and Alice to the ex-contributions. For the year, the estate’s distribut- income. Such an amount is in addition to thosetent of $3,500 (distributable net income ofable net income is only $6,000. The distributable amounts that must be distributed currently, as$6,000 minus currently distributable income tonet income is less than the currently distributa- discussed earlier. It does not include gifts orSusan of $2,500). Susan will include an addi-ble income, so the widow must include in her bequests of specific sums of money or specifictional $1,400 [($2,000 ÷ $5,000) × $3,500] in hergross income only $4,000 [($5,000 ÷ $7,500) × property if such sums are paid in three or fewergross income. Joe and Alice each will include$6,000], and the daughter must include in her installments. However, amounts that can be$1,050 [($1,500 ÷ $5,000) × $3,500] in theirgross income only $2,000 [($2,500 ÷ $7,500) × paid only out of income are not excluded undergross incomes.$6,000]. this rule. If the sum of the income that must be

distributed currently and other amounts paid,Annuity payable out of income or corpus. Discharge of acredited, or required to be distributed exceedsIncome that must be distributed currently in-Legal Obligationcludes any amount that must be paid out of distributable net income, these other amounts

income or corpus (principal of the estate) to the are included in the beneficiary’s gross incomeIf an estate, under the terms of a will, dischargesextent the amount is satisfied out of income for only to the extent distributable net income ex-a legal obligation of a beneficiary, the dischargethe tax year. An annuity that must be paid in all ceeds the income that must be distributed cur- is included in that beneficiary’s income as eitherevents (either out of income or corpus) would rently. If there is more than one beneficiary, currently distributable income or other amountqualify as income that must be distributed cur- each will include in gross income only a pro rata paid. This does not apply to the discharge of arently to the extent there is income of the estate share of such amounts. beneficiary’s obligation to pay alimony or sepa-not paid, credited, or required to be distributed to

The personal representative can elect to rate maintenance.other beneficiaries for the tax year.treat distributions paid or credited by the estate The beneficiary’s legal obligations include awithin 65 days after the close of the estate’s tax legal obligation of support, for example, of aExample 1. Henry Frank’s will provides thatyear as having been paid or credited on the last minor child. Local law determines a legal obliga-$500 be paid to the local Community Chest out

tion of support.day of that tax year.of income each year. It also provides that $2,000

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$2,000] to taxable interest and $400 [($1,000 ÷ Death of individual beneficiary. If an indi-Character of Distributionsvidual beneficiary dies, the beneficiary’s share$5,000) × $2,000] to tax-exempt interest. Bettyof the estate’s distributable net income may beis considered to have received $2,400 ($4,000 −An amount distributed to a beneficiary for inclu-distributed or be considered distributed by the$1,600) of taxable interest and $600 ($1,000 −sion in gross income retains the same characterestate for its tax year that does not end with or$400) of tax-exempt interest. She must includefor the beneficiary that it had for the estate.within the last tax year of the beneficiary. In thisthe $2,400 in her gross income. She must reportNo charitable contribution made. If no chari- case, the estate income that must be included inthe $600 of tax-exempt interest, but it is nottable contribution is made during the tax year, the gross income on the beneficiary’s final returntaxable.you must treat the distributions as consisting of is based on the amounts distributed or consid-To determine the amount to be included inthe same proportion of each class of items en- ered distributed during the tax year of the estateTim’s gross income, however, take into accounttering into the computation of distributable net in which his or her last tax year ended. However,the entire charitable contribution deduction. Theincome as the total of each class bears to the for a cash basis beneficiary, the gross income ofcurrently distributable income is greater than thetotal distributable net income. Distributable net the last tax year includes only the amounts actu-estate’s income after taking into account theincome was defined earlier in Distributions De- ally distributed before death. Income that mustcharitable contribution deduction, so none of theduction under Income Tax Return of an Es- be distributed to the beneficiary but, in fact, isamount paid to Tim must be included in histate—Form 1041. However, if the will or local distributed to the beneficiary’s estate after deathgross income for the year.law specifically provides or requires a different is included in the gross income of the

allocation, you must use that allocation. beneficiary’s estate as income in respect of aHow and When To Report decedent.Example 1. An estate has distributable netHow you report your income from the estate Termination of nonindividual beneficiary.income of $3,000, consisting of $1,800 in rentsdepends on the character of the income in the If a beneficiary that is not an individual, for ex-and $1,200 in taxable interest. There is no provi-hands of the estate. When you report the income ample a trust or a corporation, ceases to exist,sion in the will or local law for the allocation ofdepends on whether it represents amounts the amount included in its gross income for itsincome. The personal representative distributescredited or required to be distributed to you or last tax year is determined as if the beneficiary$1,500 each to Jim and Ted, beneficiaries underother amounts. were a deceased individual. However, incometheir father’s will. Each will be treated as having

that must be distributed before termination, butreceived $900 in rents and $600 of taxable inter-which is actually distributed to the beneficiary’sest. How to report estate income. Each item ofsuccessor in interest, is included in the grossincome keeps the same character in your hands

Example 2. Assume in Example 1 that the income of the nonindividual beneficiary for itsas it had in the hands of the estate. If the items ofwill provides for the payment of the taxable inter- last tax year.income distributed or considered to be distrib-est to Jim and the rental income to Ted and that uted to you include dividends, tax-exempt inter-

Schedule K–1 (Form 1041). The personalthe personal representative distributed the in- est, or capital gains, they will keep the samerepresentative for the estate must provide youcome under those provisions. Jim is treated as character in your hands for purposes of the taxwith a copy of Schedule K–1 (Form 1041) or ahaving received $1,200 in taxable interest and treatment given those items. Generally, you re-substitute Schedule K–1. You should not file theTed is treated as having received $1,800 of port the dividends on line 9a of your Form 1040,form with your Form 1040, but should keep it forrental income. and the capital gains on your Schedule D (Formyour personal records.1040). The tax-exempt interest, while not in-Charitable contribution made. If a charitable Each beneficiary (or nominee of a benefi-cluded in taxable income, must be shown on linecontribution is made by an estate and the terms ciary) who receives a distribution from the estate8b of your Form 1040. Report business andof the will or local law provide for the contribution for the tax year or to whom any item is allocatedother nonpassive income in Part III of yourto be paid from specified sources, that provision must receive a Schedule K–1 or substitute. TheSchedule E (Form 1040).governs. If no provision or requirement exists, personal representative handling the estate

The estate’s personal representative shouldthe charitable contribution deduction must be must furnish the form to each beneficiary orprovide you with the classification of the variousallocated among the classes of income entering nominee by the date on which the Form 1041 isitems that make up your share of the estateinto the computation of the income of the estate filed.income and the credits you should take intobefore allocation of other deductions among the

Nominees. A person who holds an interestconsideration so you can properly prepare youritems of distributable net income. In allocatingin an estate as a nominee for a beneficiary mustindividual income tax return. See Schedule K–1items of income and deductions to beneficiariesprovide the estate with the name and address ofto whom income must be distributed currently, (Form 1041), later.the beneficiary, and any other required informa-the charitable contribution deduction is not takention. The nominee must provide the beneficiaryinto account to the extent that it exceeds income When to report estate income. If incomewith the information received from the estate.for the year reduced by currently distributable from the estate is credited or must be distributed

income. to you for a tax year, report that income (even if Penalty. A personal representative (or nom-not distributed) on your return for that year. The inee) who fails to provide the correct information

Example. The will of Harry Thomas re- personal representative can elect to treat distri- may be subject to a $50 penalty for each failure.quires a current distribution out of income of butions paid or credited within 65 days after the

Consistent treatment of items. You must$3,000 a year to his wife, Betty, during the ad- close of the estate’s tax year as having beentreat estate items the same way on your individ-ministration of the estate. The will also provides paid or credited on the last day of that tax year. Ifual return as they are treated on the estate’sthat the personal representative, using discre- this election is made, you must report that distri-income tax return. If your treatment is differenttion, may distribute the balance of the current bution on your return for that year.from the estate’s treatment, you must file Formearnings either to Harry’s son, Tim, or to one or Report other income from the estate on your8082, Notice of Inconsistent Treatment or Ad-more of certain designated charities. Last year, return for the year in which you receive it. If yourministrative Adjustment Request (AAR), withthe estate’s income consisted of $4,000 of tax- tax year is different from the estate’s tax year,your return to identify the difference. If you doable interest and $1,000 of tax-exempt interest. see Different tax years, next. not file Form 8082 and the estate has filed aThere were no deductible expenses. The per-

Different tax years. You must include your return, the IRS can immediately assess andsonal representative distributed the $3,000 tocollect any tax and penalties that result fromshare of the estate income in your return for yourBetty, made a contribution of $2,500 to the localadjusting the item to make it consistent with thetax year in which the last day of the estate’s taxheart association, and paid $1,500 to Tim.estate’s treatment.year falls. If the tax year of the estate is theThe distributable net income for determining

calendar year and your tax year is a fiscal yearthe character of the distribution to Betty isending on June 30, you will include in gross$3,000. The charitable contribution deduction to Bequestincome for the tax year ended June 30 yourbe taken into account for this computation isshare of the estate’s distributable net income$2,000 (the estate’s income ($5,000) minus the A bequest is the act of giving or leaving propertydistributed or considered distributed during thecurrently distributable income ($3,000)). The to another through the last will and testament.calendar year ending the previous December$2,000 charitable contribution deduction must Generally, any distribution of income (or prop-31.be allocated: $1,600 [($4,000 ÷ $5,000) × erty in kind) to a beneficiary is an allowable

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deduction to the estate and is includible in the Gifts made in installments. Even if the gift ered those of the person or persons succeedingor bequest is made in a lump sum or in three or to the property of the estate.beneficiary’s gross income to the extent of thefewer installments, it will not qualify as a specificestate’s distributable net income. However, aproperty or sum of money if the will provides thatdistribution will not be an allowable deduction to

Transfer of Unusedthe amount must be paid in more than threethe estate and will not be includible in theinstallments. Deductions to Beneficiariesbeneficiary’s gross income if the distribution

meets the following requirements. Conditional bequests. A bequest of a spe- If the estate has unused loss carryovers or ex-cific property or sum of money that may other- cess deductions for its last tax year, they are• It is required by the terms of the will.wise be excluded from the beneficiary’s gross allowed to those beneficiaries who succeed to• It is a gift or bequest of a specific sum of income will not lose the exclusion solely be- the estate’s property. See Successor benefi-

money or property. cause the payment is subject to a condition. ciary, later.• It is paid out in three or fewer installments Installment payments. Certain rules apply in

Unused loss carryovers. An unused net op-under the terms of the will. determining whether a bequest of specific prop-erating loss carryover or capital loss carryovererty or a sum of money has to be paid or creditedexisting upon termination of the estate is al-to a beneficiary in more than three installments.Specific sum of money or property. To meet lowed to the beneficiaries succeeding to the

this test, the amount of money or the identity of Personal items. Do not take into account property of the estate. That is, these deductionsthe specific property must be determinable bequests of articles for personal use, such as will be claimed on the beneficiary’s tax return.under the decedent’s will as of the date of death. personal and household effects and automo- This treatment occurs only if a carryover wouldTo qualify as specific property, the property biles. have been allowed to the estate in a later taxmust be identifiable both as to its kind and its year if the estate had not been terminated.Real property. Do not take into accountamount. Both types of carryovers generally keep theirspecifically designated real property, the title to

same character for the beneficiary as they hadwhich passes under local law directly to theExample 1. Dave Rogers’ will provided that for the estate. However, if the beneficiary of abeneficiary.his son, Ed, receive Dave’s interest in the capital loss carryover is a corporation, the cor-Rogers-Jones partnership. Dave’s daughter, Other property. All other bequests under poration will treat the carryover as a short-termMarie, would receive a sum of money equal to the decedent’s will for which no time of payment capital loss regardless of its status in the estate.the value of the partnership interest given to Ed. or crediting is specified and that are to be paid or The net operating loss carryover and the capitalThe bequest to Ed is a gift of a specific property credited in the ordinary course of administration loss carryover are used in figuring the

of the estate are considered as required to beascertainable at the date of Dave Rogers’ death. beneficiary’s adjusted gross income and taxablepaid or credited in a single installment. Also, allThe bequest of a specific sum of money to Marie income. The beneficiary may have to adjust anybequests payable at any one specified timeis determinable on the same date. net operating loss carryover in figuring the alter-under the terms of the will are treated as a single native minimum tax.

Example 2. Mike Jenkins’ will provided that installment. The first tax year to which the loss is carriedhis widow, Helen, would receive money or prop- is the beneficiary’s tax year in which the estateTestamentary trust. In determining theerty to be selected by the personal representa- terminates. If the loss can be carried to morenumber of installments that must be paid ortive equal in value to half of his adjusted gross than one tax year, the estate’s last tax yearcredited to a beneficiary, the decedent’s estateestate. The identity of the property and the (whether or not a short tax year) and theand a testamentary trust created by themoney in the bequest are dependent on the beneficiary’s first tax year to which the loss isdecedent’s will are treated as separate entities.personal representative’s discretion and the carried each constitute a tax year for figuring theAmounts paid or credited by the estate and bypayment of administration expenses and other number of years to which a loss may be carried.the trust are counted separately.charges, which are not determinable at the date A capital loss carryover from an estate to aof Mike’s death. As a result, the provision is not a corporate beneficiary will be treated as though itTermination of Estatebequest of a specific sum of money or of specific resulted from a loss incurred in the estate’s lastproperty, and any distribution under that provi- tax year (whether or not a short tax year), re-The termination of an estate generally is markedsion is a deduction for the estate and income to gardless of when the estate actually incurred theby the end of the period of administration and bythe beneficiary (to the extent of the estate’s loss.the distribution of the assets to the beneficiariesdistributable net income). The fact that the be- If the last tax year of the estate is the last taxunder the terms of the will or under the laws ofquest will be specific sometime before distribu- year to which a net operating loss may be car-succession of the state if there is no will. Thesetion is immaterial. It is not ascertainable by the ried, see No double deductions, later. For abeneficiaries may or may not be the same per-

general discussion of net operating losses, seeterms of the will as of the date of death. sons as the beneficiaries of the estate’s income.Publication 536. For a discussion of capitallosses and capital loss carryovers, see Publica-Distributions not treated as bequests. Thetion 550.following distributions are not bequests that Period of Administration

meet all the requirements listed earlier that allowExcess deductions. If the deductions in theThe period of administration is the time actuallya distribution to be excluded from theestate’s last tax year (other than the exemptionrequired by the personal representative to as-beneficiary’s income and do not allow it as adeduction or the charitable contributions deduc-semble all of the decedent’s assets, pay all thededuction to the estate.tion) are more than gross income for that year,expenses and obligations, and distribute the as-

Paid only from income. An amount that the beneficiaries succeeding to the estate’ssets to the beneficiaries. This may be longer orcan be paid only from current or prior income of property can claim the excess as a deduction inshorter than the time provided by local law forthe estate does not qualify even if it is specific in figuring taxable income. To establish these de-the administration of estates.amount and there is no provision for installment ductions for the beneficiaries, a return must be

Ends if all assets distributed. If all assetspayments. filed for the estate along with a schedule show-are distributed except for a reasonable amount ing the computation of each kind of deductionAnnuity. An annuity or a payment of money set aside, in good faith, for the payment of unas- and the allocation of each to the beneficiaries.or of specific property in lieu of, or having the certained or contingent liabilities and expenses

An individual beneficiary must itemize de-effect of, an annuity is not the payment of a (but not including a claim by a beneficiary, as aductions to claim these excess deductions. Thespecific property or sum of money. beneficiary), the estate will be considered termi-deduction is claimed on Schedule A (Formnated.Residuary estate. If the will provides for the 1040), subject to the 2% limit on miscellaneous

payment of the balance or residue of the estate Ends if period unreasonably long. If settle- itemized deductions. The beneficiaries canto a beneficiary of the estate after all expenses ment is prolonged unreasonably, the estate will claim the deduction only for the tax year in whichand other specific legacies or bequests, that be treated as terminated for federal income tax or with which the estate terminates, whether theresiduary bequest is not a payment of a specific purposes. From that point on, the income, de- year of termination is a normal year or a shortproperty or sum of money. ductions, and credits of the estate are consid- tax year.

Page 22



No double deductions. A net operating with nothing to Mark and Tom. In the estate’s earlier.) Next, you use Form 56 to notify theloss deduction allowable to a successor benefi- last tax year there are excess deductions of Internal Revenue Service that you have beenciary cannot be considered in figuring the ex- $5,000 and $10,000 of unused loss carryovers. appointed executor of your father’s estate.cess deductions on termination. However, if the The total of the excess deductions and unused

Assets of the estate. Your father had the fol-estate’s last tax year is the last year in which a loss carryovers is $15,000 and Arthur is consid-lowing assets when he died.deduction for a net operating loss can be taken, ered a successor beneficiary to the extent of

the deduction, to the extent not absorbed in the $5,000, so he is entitled to one-third of the un- • His checking account balance was $2,550last return of the estate, is treated as an excess used loss carryover and one-third of the excessand his savings account balance wasdeduction on termination. Any item of income or deductions. His brothers may divide the other$53,650.deduction, or any part thereof, that is taken into two-thirds of the excess deductions and the un-

account in figuring a net operating loss or a used loss carryovers between them. • Your father inherited your parents’ homecapital loss carryover of the estate for its last tax from his parents on March 5, 1979. At thatyear cannot be used again to figure the excess time it was worth $42,000, but was ap-

Transfer of Credit fordeduction on termination. praised at the time of your father’s deathEstimated Tax Payments at $150,000. The home was free of ex-

Successor beneficiary. A beneficiary entitled isting debts (or mortgages) at the time ofWhen an estate terminates, the personal repre-to an unused loss carryover or an excess deduc- his death.sentative can choose to transfer to the benefi-tion is the beneficiary who, upon the estate’s

• Your father owned 500 shares of ABCciaries the credit for all or part of the estate’stermination, bears the burden of any loss forCompany stock that had cost him $10.20estimated tax payments for the last tax year. Towhich a carryover is allowed or of any deduc-a share in 1983. The stock had a meanmake this choice, the personal representativetions more than gross income.selling price (midpoint between highestmust complete Form 1041–T, Allocation of Esti-

If decedent had no will. If the decedent and lowest selling price) of $25 a share onmated Tax Payments to Beneficiaries, and file ithad no will, the beneficiaries are those heirs or the day he died. He also owned 500either separately or with the estate’s final Formnext of kin to whom the estate is distributed. If shares of XYZ Company stock that had1041. The Form 1041–T must be filed by thethe estate is insolvent, the beneficiaries are cost him $30 a share in 1988. The stock65th day after the close of the estate’s tax year.those to whom the estate would have been dis- had a mean selling price on the date ofThe estimated tax allocated to each benefi-tributed had it not been insolvent. If the death of $22.ciary is treated as paid or credited to the benefi-decedent’s spouse is entitled to a specified dol- ciary on the last day of the estate’s final tax year • The appraiser valued your father’s auto-lar amount of property before any distributions to and must be reported on line 14a, Schedule mobile at $6,300 and the household ef-other heirs and the estate is less than that K–1 (Form 1041). If the estate terminated in fects at $18,500.amount, the spouse is the beneficiary to the 2003, this amount is treated as a payment ofextent of the deficiency. • Your father owned a coin collection and a2003 estimated tax made by the beneficiary on

stamp collection. The face value of theJanuary 15, 2004.If decedent had a will. If the decedent hadcoins in the collection was only $600, buta will, a beneficiary normally means the residu-the appraiser valued it at $2,800. Theary beneficiaries (including residuary trusts).stamp collection was valued at $3,500.Those beneficiaries who receive a specific prop-

erty or a specific amount of money ordinarily are Form 706 • Your father’s employer sent a check tonot considered residuary beneficiaries, except your mother for $11,082 ($12,000 − $918

Generally, for estate tax purposes, you must fileto the extent the specific amount is not paid in for social security and Medicare taxes),Form 706, United States Estate (andfull. representing unpaid salary and paymentGeneration-Skipping Transfer) Tax Return. IfAlso, a beneficiary who is not strictly a resid- for accrued vacation time. The statementdeath occurred in 2003, Form 706 must be fileduary beneficiary, but whose devise or bequest is that came with the check indicated that noif the gross estate is more than $1,000,000. Ifdetermined by the value of the estate as re- amount was withheld for income tax. Thedeath occurs in 2004, Form 706 must be filed ifduced by the loss or deduction, is entitled to the check was made out to the estate, so yourthe gross estate is more than $1,500,000.carryover or the deduction. For example, this mother gave you the check.

If you must file Form 706, it has to be donewould include the following beneficiaries.• The Easy Life Insurance Company gavewithin 9 months after the date of the decedent’s• A beneficiary of a fraction of the your mother a check for $275,000 be-death unless you receive an extension of time to

decedent’s net estate after payment of cause she was the beneficiary of his lifefile. Use Form 4768, Application for Extension ofdebts, expenses, and specific bequests. insurance policy.Time To File a Return and/or Pay U.S. Estate

(and Generation-Skipping Transfer) Taxes, to• A nonresiduary beneficiary, when the es- • Your father was the owner of several se-apply for an extension of time.tate is unable to satisfy the bequest in full. ries EE U.S. savings bonds on which he

named your mother as co-owner. Your fa-• A surviving spouse receiving a fractionalther purchased the bonds during the pastshare of the estate in fee under a statutoryseveral years. The cost of these bondsright of election when the losses or deduc- Comprehensive totaled $2,500. After referring to the ap-tions are taken into account in determiningpropriate table of redemption values (seethe share. However, such a beneficiary Example U.S. savings bonds acquired from dece-does not include a recipient of a dower ordent, earlier), you determine that interestcurtesy, or a beneficiary who receives any The following is an example of a typical situa- of $840 had accrued on the bonds at theincome from the estate from which the tion. All figures on the filled-in forms have been date of your father’s death. You must in-loss or excess deduction is carried over. rounded to the nearest whole dollar. clude the redemption value of these bonds

On April 9, 2003, your father, John R. Smith, at date of death, $3,340, in your father’sdied at the age of 62. He had not resided in aAllocation among beneficiaries. The total of gross estate.community property state. His will named you tothe unused loss carryovers or the excess deduc-

• On July 1, 1993, your parents purchased aserve as his executor (personal representative).tions on termination that may be deducted by thehouse for $90,000. They have held theExcept for specific bequests to your mother,successor beneficiaries is to be divided accord-property for rental purposes continuouslyMary, of your parents’ home and your father’sing to the share of each in the burden of the losssince its purchase. Your mother paidautomobile and a bequest of $5,000 to hisor deduction.one-third of the purchase price, orchurch, your father’s will named your mother$30,000, and your father paid $60,000.Example. Under his father’s will, Arthur is to and his brother as beneficiaries.They owned the property, however, asreceive $20,000. The remainder of the estate is After the court has approved your appoint-joint tenants with right of survivorship. Anto be divided equally between his brothers, Mark ment as the executor, you should obtain anappraiser valued the property at $120,000.and Tom. After all expenses are paid, the estate employer identification number for the estate.You include $60,000, one-half of thehas sufficient funds to pay Arthur only $15,000, (See Duties under Personal Representatives,

Page 23



value, in your father’s gross estate be- $17,735 had been allowed as depreciation. (For b) The other half of the property must beinformation on ADS, see Publication 946.) depreciated using a depreciationcause your parents owned the property as

method that is acceptable for propertyjoint tenants with right of survivorship andplaced in service in 2003. You chose tothey were the only joint tenants. Deductions. During the year, you received ause ADS with the mid-month conven-bill from the hospital for $615 and bills from yourtion. The value included in the estateYour mother also gave you a Form W–2, father’s doctors totaling $475. You paid these($60,000) less the value allocable toWage and Tax Statement, that your father’s bills as they were presented. In addition, you findthe land ($10,000) is the depreciableemployer had sent. In examining it, you discover other bills from his doctors totaling $185 thatbasis ($50,000) for this half of the prop-that your father had been paid $11,000 in salary your father paid in 2003 and receipts for pre-erty. The amount deductible for this halfbetween January 1, 2003, and April 9, 2003 (the scribed drugs he purchased totaling $536. Theof the property is $886 ($50,000 ×date he died). The Form W–2 showed $11,000 funeral home presented you a bill for $6,890 for.01771). See chapter 4 and Table A-13in box 1 and $23,000 ($11,000 + $12,000) in the expenses of your father’s funeral, which youin Publication 946.boxes 3 and 5. The Form W–2 indicated $805 paid.

as federal income tax withheld in box 2. The The medical expenses you paid from theShow the total of the amounts in (1) andestate received a Form 1099–MISC from the estate’s funds ($615 and $475) were for your

(2)(a), above, on line 17 of Form 4562, Depreci-employer showing $12,000 in box 3. The estate father’s care and were paid within 1 year afteration and Amortization. Show the amount inreceived a Form 1099– INT for your father his death. They will not be used to figure the(2)(b) on line 20c. The total depreciation deduc-showing he was paid $1,900 interest on his taxable estate so you can treat them as havingtion allowed for the year is $2,097.savings account at the First S&L of Juneville, in been paid by your father when he received the

2003, before he died. medical services. See Medical Expenses underFiling status. After December 31, 2003, whenFinal Return for Decedent, earlier. However, youyour mother determines the amount of her in-cannot deduct the funeral expenses either onFinal Return come, you and your mother must decideyour father’s final return or on the estate’s in-whether you will file a joint return or separatefor Decedent come tax return. They are deductible only on thereturns for your parents for 2003. Your motherfederal estate tax return (Form 706).From the papers in your father’s files, you deter- has rental income and $400 of interest income

In addition, after going over other receiptsmine that the $11,000 paid to him by his em- from her savings account at the Mayflower Bankand canceled checks for the tax year with yourployer (as shown on the Form W–2), rental of Juneville, so it appears to be to her advantagemother, you determine that the following itemsincome, and interest are the only items of in- to file a joint return.are deductible on your parents’ 2003 income taxcome he received between January 1 and thereturn. Tax computation. The illustrations of Formdate of his death. You will have to file an income

1040 and related schedules appear near thetax return for him for the period during which he Health insurance . . . . . . . . . . . . . . . $4,250 end of this publication. These illustrations arelived. (You determine that he timely filed his State income tax paid . . . . . . . . . . . . 891based on information in this example. The tax2002 income tax return before he died.) The final Real estate tax on home . . . . . . . . . . . 1,100refund is $202. The computation is as follows:return is not due until April 15, 2004, the same Contributions to church . . . . . . . . . . . 3,800

date it would have been due had your fatherRental expenses included real estate taxes Income:lived during all of 2003.

Salary (per Form W–2) . . . $11,000of $700 and mortgage interest of $410. In addi-The check representing unpaid salary and Interest income . . . . . . . 3,140tion, insurance premiums of $260 and painting

earned but unused vacation time was not paid to Net rental income . . . . . 8,183and repair expenses for $350 were paid. TheseAdjusted gross income . . . . $22,323your father before he died, so the $12,000 is not rental expenses totaled $1,720.

Minus: Itemized deductions 10,178reported as income on his final return. It is re- Your mother and father owned the property Balance . . . . . . . . . . . . . $12,145ported on the income tax return for the estate as joint tenants with right of survivorship and Minus: Exemptions (2) . . 6,100(Form 1041) for 2003. The only taxable income they were the only joint tenants, so her basis in Taxable Income . . . . . . . . $6,045to be reported for your father will be the $11,000 this property upon your father’s death issalary (as shown on the Form W–2), the $1,900 Income tax from tax table $603$95,859. This is found by adding the $60,000interest, and his portion of the rental income that Minus: Tax withheld . . . . 805value of the half interest included in your father’she received in 2003. Refund of taxes . . . . . . . $202gross estate to your mother’s $45,000 share of

Your father was a cash basis taxpayer and the cost basis and subtracting your mother’sdid not report the interest accrued on the series $9,141 share of depreciation (including 2003 Income Tax ReturnEE U.S. savings bonds on prior tax returns that depreciation for the period before your father’s of an Estate—Form 1041he filed jointly with your mother. As the personal death), as explained next.representative of your father’s estate, you For 2003, you must make the following com- The illustrations of Form 1041 and the relatedchoose to report the interest earned on these putations to figure the depreciation deduction. schedules for 2003 appear near the end of thisbonds before your father’s death ($840) on the

publication. These illustrations are based on thefinal income tax return. 1) For the period before your father’s death, information that follows.depreciate the property using the sameThe rental property was leased the entiremethod, basis, and life used by your par-year of 2003 for $1,000 per month. Under local 2003 income tax return. Having determinedents in previous years. They used thelaw, your parents (as joint tenants) each had a the tax liability for your father’s final return, youmid-month convention, so the amount de-half interest in the income from the property. now figure the estate’s taxable income. Youductible for three and a half months isYour father’s will, however, stipulates that the decide to use the calendar year and the cash$547. (This brings the total depreciation toentire rental income is to be paid directly to your method of accounting to report the estate’s in-$18,282 ($17,735 + $547) at the time ofmother. None of the rental income will be re- come. This return also is due by April 15, 2004.your father’s death.)ported on the income tax return for the estate. In addition to the amount you received from

Instead, your mother will report all the rental your father’s employer for unpaid salary and for2) For the period after your father’s death,income and expenses on Form 1040. Checking vacation pay ($12,000) entered on line 8 (Formyou must make two computations.the records and prior tax returns of your parents, 1041), you received a dividend check from theyou find that they previously elected to use the a) Your mother’s cost basis ($45,000) mi- XYZ Company on June 17, 2003. The checkalternative depreciation system (ADS) with the nus one-half of the amount allocated to was for $750 and you enter it on line 2a (Formmid-month convention. Under ADS, the rental the land ($7,500) is her depreciable ba- 1041). The amount is a qualified dividend andhouse is depreciated using the straight-line sis ($37,500) for half of the property. you show the allocation to the beneficiaries andmethod over a 40-year recovery period. They She continues to use the same life and the estate on line 2b. The amount allocated toallocated $15,000 of the cost to the land (which depreciation method as was originally the beneficiary ($121) is based on the distributa-is never depreciable) and $75,000 to the rental used for the property. The amount de- ble dividend income before any deductions. Thehouse. Salvage value was disregarded for the ductible for the remaining eight and a estate received a Form 1099– INT showingdepreciation computation. Before 2003, half months is $664. $2,250 interest paid by the bank on the savings

Page 24



account in 2003 after your father died. Show this The estate took an income distribution de- balance of the property to your mother, the re-amount on line 1 (Form 1041). duction, so you must prepare Schedule I (Form maining beneficiary.

In September, a local coin collector offered 1041), Alternative Minimum Tax, regardless of Gross income. After making the distribu-you $3,000 for your father’s coin collection. Your whether the estate is liable for the alternative tions already described, you can wind up themother was not interested in keeping the collec- minimum tax. affairs of the estate. The gross income of thetion, so you accepted the offer and sold him the The other distribution you made out of the estate for 2004 is more than $600, so you mustcollection on September 23, 2003. assets of the estate in 2003 was the transfer of file an income tax return, Form 1041, for 2004

You will have to report the sale on Schedule the automobile to your mother on July 1. This is (not shown). The estate’s gross income for 2004D (Form 1041) when you file the income tax included in the bequest of property, so it is not is $850 (dividends $500 and interest $350).return of the estate. The estate has a capital taken into account in computing the distributions

Deductions. After making the followinggain of $200 from the sale of the coins. The gain of income to the beneficiary. The life insurancecomputations, you determine that none of theis the excess of the sale price, $3,000, over the proceeds of $275,000 paid directly to yourdistributions made to your mother must be in-value of the collection at the date of your father’s mother by the insurance company are treated ascluded in her taxable income for 2004.death, $2,800. See Gain (or loss) from sale of a specific sum of money transferred to your

property under Income Tax Return of an Es- mother under the terms of the will.Gross income for 2004:tate—Form 1041 and its discussion, Income To Tax computation. The taxable income of Dividends . . . . . . . . . . . . . . . . . . . $500Include, earlier. the estate for 2003 is $10,025, figured as fol- Interest . . . . . . . . . . . . . . . . . . . . 350

$850Deductions. In November 2003, you re- lows:Less deductions:ceived a bill for the real estate taxes on your

Administration expense . . . . . . . . . . $1,650Gross income:parents’ home. The bill was for $2,250, whichLoss . . . . . . . . . . . . . . . . . . . . . . . ($800)Income in respect of a decedent . . . . $12,000you paid. Include real estate taxes on line 11

Dividends . . . . . . . . . . . . . . . . . . . 750(Form 1041). Real estate tax on the rental prop- Note that because the contribution of $5,000Interest . . . . . . . . . . . . . . . . . . . . 2,250erty was $700; this amount, however, is re- to Hometown Church was not required underCapital gain . . . . . . . . . . . . . . . . . 200flected on Schedule E (Form 1040). the terms of the will to be paid out of the gross$15,200

You paid $325 for attorney’s fees in connec- income of the estate, it is not deductible and wasMinus: Deductions and incometion with administration of the estate. This is an distribution not included in the computation.

Real estate taxes . . . . . . . . $2,250expense of administration and is deducted on The estate had no distributable net income inAttorney’s fee . . . . . . . . . . 325line 14 (Form 1041). You must, however, file 2004, so none of the distributions made to yourExemption . . . . . . . . . . . . 600with the return a statement in duplicate that such mother have to be included in her gross income.Distribution . . . . . . . . . . . . 2,000 5,175expense has not been claimed as a deduction Furthermore, because the estate in the year ofTaxable income . . . . . . . . . . . . . . . $10,025from the gross estate for figuring the federal termination had deductions in excess of its

The estate had a net capital gain and taxableestate tax on Form 706, and that all rights to gross income, the excess of $800 will be allowedincome, so you use the Schedule D Tax Work-claim that deduction on Form 706 are waived. as a miscellaneous itemized deduction subjectsheet to figure the tax, $2,517, for 2003. to the 2%-of-adjusted-gross-income limit to yourDistributions. You made a distribution of

mother on her individual return for the year$2,000 to your father’s brother, James. The dis- Note. For purpose of this example, we have 2004, if she itemizes deductions.tribution was made from current income of the illustrated the filled-in worksheet. You would notestate under the terms of the will. Termination of estate. You have made thefile the worksheet with the return. You would

The income distribution deduction ($2,000) final distribution of the assets of the estate andkeep the worksheet for your records.is figured on Schedule B of Form 1041 and you are now ready to terminate the estate. You

2004 income tax return for estate. On Janu-deducted on line 18 (Form 1041). must notify the IRS, in writing, that the estateary 7, 2004, you receive a dividend check fromThe distribution of $2,000 must be allocated has been terminated and that all of the assetsthe XYZ Company for $500. You also have inter-and reported on Schedule K–1 (Form 1041) as have been distributed to the beneficiaries. Formest posted to the savings account in Januaryfollows: 56 can be used for this purpose. Be sure tototaling $350. On January 28, 2004, you make a report the termination to the IRS office where

Step 1 final accounting to the court and obtain permis- you filed Form 56 and to include the employerAllocation of Income & Deductions sion to close the estate. In the accounting, you identification number on this notification.

list $1,650 as the balance of the expense ofType of Distributable administering the estate.Income Amount Deductions Net Income You advise the court that you plan to payInterest $5,000 to Hometown Church under the provi-(15%) $ 2,250 (386) $ 1,864 sions of the will, and that you will distribute theDividends(5%) 750 (129) 621OtherIncome(80%) 12,000 (2,060) 9,940Total $15,000 (2,575) $12,425

Step 2Allocation of Distribution

(Report on the Schedule K–1 for James)

Line 1 – Interest($2,000 × 1,864 ÷ 12,425) . . . . . . . . $300

Line 2b – Total dividends($2,000 × 621 ÷ 12,425) . . . . . . . . . 100

Line 5a – Other Income($2,000 × 9,940 ÷12,425) . . . . . . . . 1,600

Total Distribution . . . . . . . . . . . . . . $2,000

Page 25



DECEASED John R. Smith -- April 9, 2003

John R. Smith

Mary L.

6406 Mayflower St.

Juneville, ME 00000

234 00 7890

567 00 0123

�

2

2

11,0003,140

8,183

22,323

22,323

�

�

Smith

� �

Department of the Treasury—Internal Revenue Service1040 U.S. Individual Income Tax ReturnOMB No. 1545-0074For the year Jan. 1–Dec. 31, 2003, or other tax year beginning , 2003, ending , 20

Last nameYour first name and initial Your social security number

(Seeinstructionson page 19.)

LABEL

HERE

Last name Spouse’s social security numberIf a joint return, spouse’s first name and initial

Use the IRSlabel.Otherwise,please printor type.

Home address (number and street). If you have a P.O. box, see page 19. Apt. no.

City, town or post office, state, and ZIP code. If you have a foreign address, see page 19.

PresidentialElection Campaign

1 SingleFiling Status Married filing jointly (even if only one had income)2

Check onlyone box.

3Qualifying widow(er) with dependent child. (See page 20.)

6a Yourself. If your parent (or someone else) can claim you as a dependent on his or her taxreturn, do not check box 6aExemptions

Spouseb(4) if qualifyingchild for child tax

credit (see page 21)

Dependents:c (2) Dependent’ssocial security number

(3) Dependent’srelationship to

you(1) First name Last name

If more than fivedependents,see page 21.

d Total number of exemptions claimed

7Wages, salaries, tips, etc. Attach Form(s) W-278a8a Taxable interest. Attach Schedule B if requiredIncome

8bb Tax-exempt interest. Do not include on line 8aAttach Forms W-2 andW-2G here.Also attachForm(s) 1099-Rif tax waswithheld.

9a9a Ordinary dividends. Attach Schedule B if required

1010 Taxable refunds, credits, or offsets of state and local income taxes (see page 23)1111 Alimony received1212 Business income or (loss). Attach Schedule C or C-EZ

Enclose, but donot attach, anypayment. Also,please useForm 1040-V.

13a13a Capital gain or (loss). Attach Schedule D if required. If not required, check here �

1414 Other gains or (losses). Attach Form 479715a 15bIRA distributions b Taxable amount (see page 25)15a

16b16aPensions and annuities b Taxable amount (see page 25)16a1717 Rental real estate, royalties, partnerships, S corporations, trusts, etc. Attach Schedule E1818 Farm income or (loss). Attach Schedule F1919 Unemployment compensation

20b20a b Taxable amount (see page 27)20a Social security benefits2121

22 Add the amounts in the far right column for lines 7 through 21. This is your total income � 22

24IRA deduction (see page 29)

23

2625

One-half of self-employment tax. Attach Schedule SE

27

Self-employed health insurance deduction (see page 33)

26

2827

Self-employed SEP, SIMPLE, and qualified plans

2928

Penalty on early withdrawal of savings

3029

Alimony paid b Recipient’s SSN �

33Add lines 23 through 32a

30

Subtract line 33 from line 22. This is your adjusted gross income �

31

AdjustedGrossIncome

34

If you did notget a W-2,see page 22.

Form

Married filing separately. Enter spouse’s SSN aboveand full name here. �

Cat. No. 11320B

�

�

Label

Form 1040 (2003)

IRS Use Only—Do not write or staple in this space.

Head of household (with qualifying person). (See page 20.) Ifthe qualifying person is a child but not your dependent, enterthis child’s name here. �

Other income. List type and amount (see page 27)

Moving expenses. Attach Form 3903

2425

For Disclosure, Privacy Act, and Paperwork Reduction Act Notice, see page 77.

No. of boxeschecked on6a and 6b

No. of childrenon 6c who:

Dependents on 6cnot entered above

Add numberson linesabove �

● lived with you● did not live withyou due to divorceor separation(see page 21)

32a 32a

Student loan interest deduction (see page 31)

31

33

� �Important!

NoYesNote. Checking “Yes” will not change your tax or reduce your refund.Do you, or your spouse if filing a joint return, want $3 to go to this fund? �

You must enteryour SSN(s) above.

YesNo

SpouseYou

(See page 19.)

(99)

Tuition and fees deduction (see page 32)

34

4

5

23Educator expenses (see page 29)

2003

9bb Qualified dividends (see page 23)

13bb If box on 13a is checked, enter post-May 5 capital gain distributions

Page 26



22,323

10,17812,145

6,1006,045

603

805

805202202

3-25-04

3-25-04

Charles R. Smith, Executor

Mary L. Smith

603

603

603

Itemized deductions (from Schedule A) or your standard deduction (see left margin)

Add lines 61 through 67. These are your total payments �

Page 2Form 1040 (2003)

Amount from line 34 (adjusted gross income)35 35

Checkif:

36aTax andCredits

36a

Single orMarried filingseparately,$4,750

If you are married filing separately and your spouse itemizes deductions, oryou were a dual-status alien, see page 34 and check here �

b36b

37 37

38Subtract line 37 from line 3538

39If line 35 is $104,625 or less, multiply $3,050 by the total number of exemptions claimed online 6d. If line 35 is over $104,625, see the worksheet on page 35

39

40Taxable income. Subtract line 39 from line 38. If line 39 is more than line 38, enter -0-40

41 41

45

46

51

Education credits. Attach Form 8863

44

49

Other credits. Check applicable box(es):

48

53

54Add lines 44 through 52. These are your total credits

48

Subtract line 53 from line 43. If line 53 is more than line 43, enter -0- �

53

Self-employment tax. Attach Schedule SE

54

OtherTaxes

55

69

Social security and Medicare tax on tip income not reported to employer. Attach Form 413757Tax on qualified plans, including IRAs, and other tax-favored accounts. Attach Form 5329 if required

56

58

Add lines 54 through 59. This is your total tax �

59 59

Federal income tax withheld from Forms W-2 and 109961 61

622003 estimated tax payments and amount applied from 2002 return62Payments

63

66Amount paid with request for extension to file (see page 56)

65

64Excess social security and tier 1 RRTA tax withheld (see page 56)

66

68Other payments from:67

70a70a

71 71

If line 68 is more than line 60, subtract line 60 from line 68. This is the amount you overpaid

72 72

Amount of line 69 you want refunded to you �Refund

73

Amount of line 69 you want applied to your 2004 estimated tax �

Estimated tax penalty (see page 58)

Under penalties of perjury, I declare that I have examined this return and accompanying schedules and statements, and to the best of my knowledge andbelief, they are true, correct, and complete. Declaration of preparer (other than taxpayer) is based on all information of which preparer has any knowledge.

73

You were born before January 2, 1939, Blind.

Spouse was born before January 2, 1939, Blind.

a Form 3800

b Form 8801 c Specify

a Form 2439 b Form 4136

57

Household employment taxes. Attach Schedule H

58

67

AmountYou Owe

SignHere

DateYour signature

Keep a copyfor yourrecords.

DateSpouse’s signature. If a joint return, both must sign.

Preparer’s SSN or PTINDatePreparer’ssignature

Check ifself-employed

PaidPreparer’sUse Only

Firm’s name (oryours if self-employed),address, and ZIP code

EIN

Phone no.

��

�

Your occupation

Tax (see page 36). Check if any tax is from:

Amount you owe. Subtract line 68 from line 60. For details on how to pay, see page 57 �

b

Direct deposit?See page 56and fill in 70b,70c, and 70d.

Routing number

Account number

c Checking Savings

a Form(s) 8814 Form 4972

bd

�

�

68

47

44

Retirement savings contributions credit. Attach Form 8880

5556

Advance earned income credit payments from Form(s) W-2

69

�

Child tax credit (see page 40)

Credits from:

47

51

49

Additional child tax credit. Attach Form 8812

6465

Head ofhousehold,$7,000

Married filingjointly orQualifyingwidow(er),$9,500

StandardDeductionfor—

Joint return?See page 20.

Daytime phone number

( )

Earned income credit (EIC)

Credit for the elderly or the disabled. Attach Schedule R

42

43

45

Alternative minimum tax (see page 38). Attach Form 6251

Add lines 41 and 42 �

Credit for child and dependent care expenses. Attach Form 244146

If you have aqualifyingchild, attachSchedule EIC.

42

43

63

Spouse’s occupation

( )

Form 1040 (2003)

● People whochecked anybox on line36a or 36b orwho can beclaimed as adependent,see page 34.

● All others:

Designee’sname �

Do you want to allow another person to discuss this return with the IRS (see page 58)?Third PartyDesignee Phone

no. � ( )

Yes. Complete the following. No

Personal identificationnumber (PIN) �

52

Foreign tax credit. Attach Form 1116 if required

52

a Form 8396 b Form 8859

5050 Adoption credit. Attach Form 8839

60 60

Type:

c Form 8885

Total boxeschecked ��

Page 27



John R. (Deceased) & Mary L. Smith 234 00 7890

6,06122,323

1,6744,387

8911,100

1,991

3,800

3,800

10,178

OMB No. 1545-0074SCHEDULES A&B Schedule A—Itemized Deductions(Form 1040)

(Schedule B is on back)Department of the TreasuryInternal Revenue Service � Attach to Form 1040. � See Instructions for Schedules A and B (Form 1040).

AttachmentSequence No. 07

Name(s) shown on Form 1040 Your social security number

Caution. Do not include expenses reimbursed or paid by others.Medicaland DentalExpenses

1Medical and dental expenses (see page A-2)122

3Multiply line 2 by 7.5% (.075)3Subtract line 3 from line 1. If line 3 is more than line 1, enter -0-4 4

5State and local income taxes5Taxes You Paid 6Real estate taxes (see page A-2)6

Other taxes. List type and amount �8(Seepage A-2.)

8Add lines 5 through 89 9

Home mortgage interest and points reported to you on Form 109810InterestYou Paid

10

Home mortgage interest not reported to you on Form 1098. If paidto the person from whom you bought the home, see page A-3and show that person’s name, identifying no., and address �

11(Seepage A-3.)

11

12Points not reported to you on Form 1098. See page A-3for special rules

12

13 Investment interest. Attach Form 4952 if required. (Seepage A-4.) 13

14 14Add lines 10 through 13

Gifts to Charity 15

15 Gifts by cash or check. If you made any gift of $250 ormore, see page A-4

16Other than by cash or check. If any gift of $250 or more,see page A-4. You must attach Form 8283 if over $500

16

17Carryover from prior year1718 Add lines 15 through 17 18

Casualty or theft loss(es). Attach Form 4684. (See page A-5.)19Casualty and Theft Losses 19

Unreimbursed employee expenses—job travel, uniondues, job education, etc. Attach Form 2106 or 2106-EZif required. (See page A-5.) �

20Job Expensesand MostOtherMiscellaneousDeductions

22 Other expenses—investment, safe deposit box, etc. Listtype and amount �

(Seepage A-5.)

Add lines 20 through 2223Enter amount from Form 1040, line 3524Multiply line 24 by 2% (.02)25Subtract line 25 from line 23. If line 25 is more than line 23, enter -0-26 26

Other—from list on page A-6. List type and amount � 27OtherMiscellaneousDeductions 27

28TotalItemizedDeductions 28

Schedule A (Form 1040) 2003For Paperwork Reduction Act Notice, see Form 1040 instructions.

24

20

2223

If you made agift and got abenefit for it,see page A-4.

25

Enter amount from Form 1040, line 35

No. Your deduction is not limited. Add the amounts in the far right columnfor lines 4 through 27. Also, enter this amount on Form 1040, line 37.

Yes. Your deduction may be limited. See page A-6 for the amount to enter.

Cat. No. 11330X

�

Note.Personalinterest isnotdeductible.

�

7Personal property taxes7

21Tax preparation fees21

Is Form 1040, line 35, over $139,500 (over $69,750 if married filing separately)?

(99)

2003

Page 28



First S&L of Juneville

Mayflower Bank of Juneville

1,900

400

3,140

-0-3,140

�

�

Series EE U.S. Savings Bonds -- InterestIncludible Before Decedent’s Death

840

Page 2Page 2OMB No. 1545-0074Schedules A&B (Form 1040) 2003

Name(s) shown on Form 1040. Do not enter name and social security number if shown on other side. Your social security number

AttachmentSequence No. 08Schedule B—Interest and Ordinary Dividends

Part IInterest(See page B-1and theinstructions forForm 1040,line 8a.)

AmountList name of payer. If any interest is from a seller-financed mortgage and thebuyer used the property as a personal residence, see page B-1 and list thisinterest first. Also, show that buyer’s social security number and address �

1

Note. If youreceived a Form1099-INT, Form1099-OID, orsubstitutestatement froma brokerage firm,list the firm’sname as thepayer and enterthe total interestshown on thatform.

1

2Add the amounts on line 12

3Excludable interest on series EE and I U.S. savings bonds issued after 1989.Attach Form 8815

3

Subtract line 3 from line 2. Enter the result here and on Form 1040, line 8a �4 4

Part IIOrdinaryDividends

Amount

(See page B-1and theinstructions forForm 1040,line 9a.)

5 List name of payer �

Note. If youreceived a Form1099-DIV orsubstitutestatement froma brokerage firm,list the firm’sname as thepayer and enterthe ordinarydividends shownon that form.

5

66 Add the amounts on line 5. Enter the total here and on Form 1040, line 9a �

For Paperwork Reduction Act Notice, see Form 1040 instructions. Schedule B (Form 1040) 2003

Note. If line 4 is over $1,500, you must complete Part III.

Note. If line 6 is over $1,500, you must complete Part III.

You must complete this part if you (a) had over $1,500 of taxable interest or ordinary dividends; or (b) hada foreign account; or (c) received a distribution from, or were a grantor of, or a transferor to, a foreign trust.Part III

ForeignAccountsand Trusts

NoYes

At any time during 2003, did you have an interest in or a signature or other authority over a financialaccount in a foreign country, such as a bank account, securities account, or other financialaccount? See page B-2 for exceptions and filing requirements for Form TD F 90-22.1

7a

b If “Yes,” enter the name of the foreign country � (Seepage B-2.) During 2003, did you receive a distribution from, or were you the grantor of, or transferor to, a

foreign trust? If “Yes,” you may have to file Form 3520. See page B-28

Page 29



John R. (Deceased) & Mary L. Smith 234 00 7890

House, 137 Main StreetJuneville, ME 00000 �

12,000

260

410

350

700

1,720

2,0973,817

8,183

8,183

8,183

12,000

410

1,720

2,097

)

SCHEDULE E OMB No. 1545-0074Supplemental Income and Loss(Form 1040) (From rental real estate, royalties, partnerships,

S corporations, estates, trusts, REMICs, etc.)� Attach to Form 1040 or Form 1041. � See Instructions for Schedule E (Form 1040).

Department of the TreasuryInternal Revenue Service

Attachment Sequence No. 13

Your social security numberName(s) shown on return

Income or Loss From Rental Real Estate and Royalties Note. If you are in the business of renting personal property, useSchedule C or C-EZ (see page E-2). Report farm rental income or loss from Form 4835 on page 2, line 40.

Show the kind and location of each rental real estate property:1

A

B

C

NoYes2

A

B

CProperties Totals

(Add columns A, B, and C.)Income: CBA3 33 Rents received

4 Royalties received 44

Expenses:5Advertising56Auto and travel (see page E-4)67Cleaning and maintenance78Commissions89Insurance9

1010 Legal and other professional fees11

Mortgage interest paid to banks,etc. (see page E-4) 12

11

12

Other interest

12

13

Repairs13

14

Supplies14

15

Taxes15

16

Utilities16

1717Other (list) �18

18

1919Add lines 5 through 1819

Depreciation expense or depletion(see page E-4)

2020 2021Total expenses. Add lines 19 and 2021

Income or (loss) from rental realestate or royalty properties.Subtract line 21 from line 3 (rents)or line 4 (royalties). If the result isa (loss), see page E-4 to find outif you must file Form 6198

22

22

Deductible rental real estate loss.Caution. Your rental real estateloss on line 22 may be limited. Seepage E-4 to find out if you mustfile Form 8582. Real estateprofessionals must complete line43 on page 2

23

)( )()(232424 Income. Add positive amounts shown on line 22. Do not include any losses

)(25Losses. Add royalty losses from line 22 and rental real estate losses from line 23. Enter total losses here2526 Total rental real estate and royalty income or (loss). Combine lines 24 and 25. Enter the result

here. If Parts II, III, IV, and line 40 on page 2 do not apply to you, also enter this amount on Form1040, line 17. Otherwise, include this amount in the total on line 41 on page 2 26

For Paperwork Reduction Act Notice, see Form 1040 instructions. Cat. No. 11344L Schedule E (Form 1040) 2003

Part I

Management fees

(99)

For each rental real estate propertylisted on line 1, did you or your familyuse it during the tax year for personalpurposes for more than the greater of:● 14 days or● 10% of the total days rented at

fair rental value?(See page E-3.)

2003

Page 30



John R. (Deceased) & Mary L. Smith 234-00-7890

4-03 50,000 886

1,211

2,097

OMB No. 1545-0172Depreciation and Amortization4562Form(Including Information on Listed Property)


AttachmentSequence No. 67� See separate instructions.

Identifying numberName(s) shown on return Business or activity to which this form relates

Election To Expense Certain Property Under Section 179Note: If you have any listed property, complete Part V before you complete Part I.

$100,0001Maximum amount. See page 2 of the instructions for a higher limit for certain businesses12Total cost of section 179 property placed in service (see page 2 of the instructions)2

$400,0003Threshold cost of section 179 property before reduction in limitation34Reduction in limitation. Subtract line 3 from line 2. If zero or less, enter -0-4

Dollar limitation for tax year. Subtract line 4 from line 1. If zero or less, enter -0-. If marriedfiling separately, see page 2 of the instructions

55

(a) Description of property (b) Cost (business use only) (c) Elected cost

6

7Listed property. Enter the amount from line 29788 Total elected cost of section 179 property. Add amounts in column (c), lines 6 and 79Tentative deduction. Enter the smaller of line 5 or line 89

10Carryover of disallowed deduction from line 13 of your 2002 Form 45621011Business income limitation. Enter the smaller of business income (not less than zero) or line 5 (see instructions)1112Section 179 expense deduction. Add lines 9 and 10, but do not enter more than line 1112

13 Carryover of disallowed deduction to 2004. Add lines 9 and 10, less line 12 � 13Note: Do not use Part II or Part III below for listed property. Instead, use Part V.

MACRS Depreciation (Do not include listed property.) (See page 4 of the instructions.)

(b) Month andyear placed in

service

(c) Basis for depreciation(business/investment use

only—see instructions)

(d) Recoveryperiod(a) (e) Convention (f) Method (g) Depreciation deduction

Section B—Assets Placed in Service During 2003 Tax Year Using the General Depreciation System

3-year property19a5-year propertyb7-year propertyc

10-year propertyd15-year propertye20-year propertyf

S/LMM27.5 yrs.Residential rentalproperty

hS/LMM27.5 yrs.S/LMMNonresidential real

propertyi

S/LMMSection C—Assets Placed in Service During 2003 Tax Year Using the Alternative Depreciation System

S/L20a Class life12 yrs. S/Lb 12-year40 yrs. MM S/Lc 40-year

Special Depreciation Allowance and Other Depreciation (Do not include listed property.)

MACRS deductions for assets placed in service in tax years beginning before 200317 17

15Property subject to section 168(f)(1) election (see page 4 of the instructions)15Other depreciation (including ACRS) (see page 4 of the instructions)16 16

Summary (see page 6 of the instructions)2121 Listed property. Enter amount from line 28

Total. Add amounts from line 12, lines 14 through 17, lines 19 and 20 in column (g), and line 21.Enter here and on the appropriate lines of your return. Partnerships and S corporations—see instr.

2222

23 For assets shown above and placed in service during the current year,enter the portion of the basis attributable to section 263A costs 23

Form 4562 (2003)For Paperwork Reduction Act Notice, see separate instructions. Cat. No. 12906N

Part IV

Part I

Part II

Part III

� Attach to your tax return.

39 yrs.

Section A

18 If you are electing under section 168(i)(4) to group any assets placed in service during the taxyear into one or more general asset accounts, check here �

Classification of property

25-year propertyg 25 yrs. S/L

Special depreciation allowance for qualified property (other than listed property) placed inservice during the tax year (see page 3 of the instructions)

1414

2003

Page 31



Estate of John R. Smith

Charles R. Smith, Executor

6406 Mayflower St.

Juneville, ME 00000�

10 0123456

4-9-03

IRD Salary and vacation pay

2,250750

200

12,00015,200

2,250

325

2,57512,6252,000

6002,60010,025

2,517

�

3-24-04Charles R. Smith

2,517

121 629

Department of the Treasury—Internal Revenue Service

Form 1041 U.S. Income Tax Return for Estates and Trusts OMB No. 1545-0092

For calendar year 2003 or fiscal year beginning , 2003, and ending , 20Name of estate or trust (If a grantor type trust, see page 12 of the instructions.) C

A

Decedent’s estate

Name and title of fiduciary

DSimple trust

Complex trust

Number, street, and room or suite no. (If a P.O. box, see page 12 of the instructions.)Grantor type trust

E Nonexempt charitable and split-interest trusts, check applicableboxes (see page 13 of theinstructions):Bankruptcy estate–Ch. 7

City or town, state, and ZIP code

Pooled income fundDescribed in section 4947(a)(1)

Checkapplicableboxes:

Initial return Final return Amended return

Not a private foundation

Change in fiduciary’s name Change in fiduciary’s address

Described in section 4947(a)(2)

11 Interest income2a2a Total ordinary dividends

3Business income or (loss) (attach Schedule C or C-EZ (Form 1040))34Capital gain or (loss) (attach Schedule D (Form 1041))45Rents, royalties, partnerships, other estates and trusts, etc. (attach Schedule E (Form 1040))5In

com

e

6Farm income or (loss) (attach Schedule F (Form 1040))67Ordinary gain or (loss) (attach Form 4797)7

Other income. List type and amount8 8Total income. Combine lines 1, 2a, and 3 through 8 �9 9

10Interest. Check if Form 4952 is attached �1011Taxes1112Fiduciary fees1213Charitable deduction (from Schedule A, line 7)1314Attorney, accountant, and return preparer fees14

Other deductions not subject to the 2% floor (attach schedule)15a 15a

b Allowable miscellaneous itemized deductions subject to the 2% floor 15b

Ded

ucti

ons

16Total. Add lines 10 through 15b1617Adjusted total income or (loss). Subtract line 16 from line 9. Enter here and on Schedule B, line 1 �171818 Income distribution deduction (from Schedule B, line 15) (attach Schedules K-1 (Form 1041))1919 Estate tax deduction (including certain generation-skipping taxes) (attach computation)20Exemption20

Total deductions. Add lines 18 through 20 �21 212222 Taxable income. Subtract line 21 from line 17. If a loss, see page 18 of the instructions23Total tax (from Schedule G, line 7)23

24aPayments: a 2003 estimated tax payments and amount applied from 2002 return2424bb Estimated tax payments allocated to beneficiaries (from Form 1041-T)24cSubtract line 24b from line 24ac24dForm 8800Form 8736Form 2758Tax paid with extension of time to file:d24eFederal income tax withheld. If any is from Form(s) 1099, check �e24hOther payments: f Form 2439 ; g Form 4136 ; Total �

25Total payments. Add lines 24c through 24e, and 24h �25

Tax

and

Pay

men

ts

262627Tax due. If line 25 is smaller than the total of lines 23 and 26, enter amount owed2728Overpayment. If line 25 is larger than the total of lines 23 and 26, enter amount overpaid28

Amount of line 28 to be: a Credited to 2004 estimated tax � ; b Refunded � 2929

Cat. No. 11370H Form 1041 (2003)For Paperwork Reduction Act Notice, see the separate instructions.

Employer identification number

Date entity created

Type of entity (see instr.):

F

Pooled mortgage account (see page 13 of the instructions):G Bought Sold Date:

Number of Schedules K-1attached (seeinstructions) �

B

Bankruptcy estate–Ch. 11

Estimated tax penalty (see page 19 of the instructions)

Under penalties of perjury, I declare that I have examined this return, including accompanying schedules and statements, and to the best of my knowledge and belief, it is true,correct, and complete. Declaration of preparer (other than taxpayer) is based on all information of which preparer has any knowledge.Sign

HereEIN of fiduciary if a financial institutionDateSignature of fiduciary or officer representing fiduciary

Date Preparer’s SSN or PTINPreparer’ssignature

Check ifself-employed

PaidPreparer’sUse Only

Firm’s name (oryours if self-employed),address, and ZIP code

EIN

Phone no. ( )

May the IRS discuss this returnwith the preparer shown below(see instr.)? Yes No�

��

�

Qualified disability trust

ESBT (S portion only)

2003

Qualified dividends allocable to: (1) Beneficiaries (2) Estate or trustb

Page 32



12,625

(200)12,425

2,0002,000

2,00012,4252,000

2,517

2,517

2,517-0-

2,517

�

�

�

�

�

�

Form 1041 (2003) Page 2Charitable Deduction. Do not complete for a simple trust or a pooled income fund.

1Amounts paid or permanently set aside for charitable purposes from gross income (see page 20)12 2

334

Tax-exempt income allocable to charitable contributions (see page 20 of the instructions)

4

5

Subtract line 2 from line 1

5

Charitable deduction. Subtract line 6 from line 5. Enter here and on page 1, line 13

66

Income Distribution Deduction11 Adjusted total income (see page 20 of the instructions)2Adjusted tax-exempt interest2

Total net gain from Schedule D (Form 1041), line 16a, column (1) (see page 20 of the instructions)3 3

Enter amount from Schedule A, line 4 (reduced by any allocable section 1202 exclusion)4 4

Capital gains for the tax year included on Schedule A, line 1 (see page 21 of the instructions)5 5

6 Enter any gain from page 1, line 4, as a negative number. If page 1, line 4, is a loss, enter theloss as a positive number 6

78

7Distributable net income (DNI). Combine lines 1 through 6. If zero or less, enter -0-

9

8

10

If a complex trust, enter accounting income for the tax year asdetermined under the governing instrument and applicable local law

9

11

Income required to be distributed currently10Other amounts paid, credited, or otherwise required to be distributed

12

11

13

Total distributions. Add lines 9 and 10. If greater than line 8, see page 21 of the instructions12

14

Enter the amount of tax-exempt income included on line 1113Tentative income distribution deduction. Subtract line 12 from line 11

1514Tentative income distribution deduction. Subtract line 2 from line 7. If zero or less, enter -0-15Income distribution deduction. Enter the smaller of line 13 or line 14 here and on page 1, line 18

Tax Computation (see page 21 of the instructions)

1d

Tax:1

2aForeign tax credit (attach Form 1116)2a2bb Other nonbusiness credits (attach schedule)

General business credit. Enter here and check which forms are attached:c2cForm 38002dCredit for prior year minimum tax (attach Form 8801)d

3Total credits. Add lines 2a through 2d �34Subtract line 3 from line 1d. If zero or less, enter -0-45Recapture taxes. Check if from:5

Alternative minimum tax (from Schedule I, line 56)

7Total tax. Add lines 4 through 6. Enter here and on page 1, line 23 �7

Schedule B

Schedule A

Schedule G

Section 1202 exclusion allocable to capital gains paid or permanently set aside for charitablepurposes (see page 20 of the instructions)

77

Tax on taxable income (see page 21 of the instructions)b

Total. Add lines 1a through 1c �

Tax on lump-sum distributions (attach Form 4972)

d

1a1b

Other Information NoYesDid the estate or trust receive tax-exempt income? If “Yes,” attach a computation of the allocation of expenses1

2 Did the estate or trust receive all or any part of the earnings (salary, wages, and other compensation) of anyindividual by reason of a contract assignment or similar arrangement?At any time during calendar year 2003, did the estate or trust have an interest in or a signature or other authorityover a bank, securities, or other financial account in a foreign country?

3

4

5

If this is an estate or a complex trust making the section 663(b) election, check here (see page 24) �6To make a section 643(e)(3) election, attach Schedule D (Form 1041), and check here (see page 24) �

If the decedent’s estate has been open for more than 2 years, attach an explanation for the delay in closing the estate, and check here �

7

Enter the amount of tax-exempt interest income and exempt-interest dividends � $

a

Did the estate or trust receive, or pay, any qualified residence interest on seller-provided financing? If “Yes,”see page 24 for required attachment

8

Forms (specify) �

Form 4255 Form 86116Household employment taxes. Attach Schedule H (Form 1040)6

Capital gains for the tax year allocated to corpus and paid or permanently set aside for charitable purposesAdd lines 3 and 4

Are any present or future trust beneficiaries skip persons? See page 24 of the instructions9

1cc

See page 23 of the instructions for exceptions and filing requirements for Form TD F 90-22.1. If “Yes,” enterthe name of the foreign country �

Form 1041 (2003)

During the tax year, did the estate or trust receive a distribution from, or was it the grantor of, or transferor to,a foreign trust? If “Yes,” the estate or trust may have to file Form 3520. See page 24 of the instructions

Page 33



12,625

2,250

14,875

2,00012,875

2,000

Part I—Estate’s or Trust’s Share of Alternative Minimum Taxable Income1Adjusted total income or (loss) (from page 1, line 17)12Interest23Taxes3

5Refund of taxes56Depletion (difference between regular tax and AMT) 67Net operating loss deduction. Enter as a positive amount7

( )

8Interest from specified private activity bonds exempt from the regular tax89Qualified small business stock (see page 25 of the instructions) 9

Exercise of incentive stock options (excess of AMT income over regular tax income)10 1011Other estates and trusts (amount from Schedule K-1 (Form 1041), line 9)1112Electing large partnerships (amount from Schedule K-1 (Form 1065-B), box 6)1213Disposition of property (difference between AMT and regular tax gain or loss)1314Depreciation on assets placed in service after 1986 (difference between regular tax and AMT)1415Passive activities (difference between AMT and regular tax income or loss)1516Loss limitations (difference between AMT and regular tax income or loss)1617Circulation costs (difference between regular tax and AMT)1718Long-term contracts (difference between AMT and regular tax income)1819Mining costs (difference between regular tax and AMT) 1920202121

Research and experimental costs (difference between regular tax and AMT)Income from certain installment sales before January 1, 1987

22Intangible drilling costs preference22Other adjustments, including income-based related adjustments23 23

24Alternative tax net operating loss deduction (See the instructions for the limitation that applies.)24

2627

28

29

Note: Complete Part II on page 4 before going to line 26.Income distribution deduction from Part II, line 44Estate tax deduction (from page 1, line 19)Add lines 26 and 27Estate’s or trust’s share of alternative minimum taxable income. Subtract line 28 from line 25

28

Form 1041 (2003) Page 3Schedule I Alternative Minimum Tax (see pages 24 through 30 of the instructions)

4 Miscellaneous itemized deductions (from page 1, line 15b)

Adjusted alternative minimum taxable income. Combine lines 1 through 24 25 25

● $22,500 or less, stop here and enter -0- on Schedule G, line 1c. The estate or trust is notliable for the alternative minimum tax.● Over $22,500, but less than $165,000, go to line 45.● $165,000 or more, enter the amount from line 29 on line 51 and go to line 52.

If line 29 is:

2726

Form 1041 (2003)

4

29

( )

( )

Page 34



Page 4Form 1041 (2003)

Part III—Alternative Minimum Tax4545 Exemption amount

$75,00047Phase-out of exemption amount47

49Multiply line 48 by 25% (.25)4950Subtract line 49 from line 45. If zero or less, enter -0-5051Subtract line 50 from line 4651

52

52

54Tentative minimum tax. Subtract line 53 from line 5254Enter the tax from Schedule G, line 1a (minus any foreign tax credit from Schedule G, line 2a)55Alternative minimum tax. Subtract line 55 from line 54. If zero or less, enter -0-. Enter here andon Schedule G, line 1c 56

53 Alternative minimum foreign tax credit (see page 29 of the instructions) 53

● $175,000 or less, multiply line 51 by 26% (.26).● Over $175,000, multiply line 51 by 28% (.28) and subtract $3,500 from the result

$22,50046Enter the amount from line 2946

48Subtract line 47 from line 46. If zero or less, enter -0-48

56

Go to Part IV of Schedule I to figure line 52 if the estate or trust has qualified dividends or hasa gain on lines 15a and 16a of column (2) of Schedule D (Form 1041) (as refigured for the AMT,if necessary). Otherwise, if line 51 is—

55

00

00

Form 1041 (2003)

Part II—Income Distribution Deduction on a Minimum Tax Basis

31Adjusted alternative minimum taxable income (see page 28 of the instructions)

3132

Adjusted tax-exempt interest (other than amounts included on line 8)32

33

Total net gain from Schedule D (Form 1041), line 16a, column (1). If a loss, enter -0-33 Capital gains for the tax year allocated to corpus and paid or permanently set aside for charitable

purposes (from Schedule A, line 4)34

34Capital gains paid or permanently set aside for charitable purposes from gross income (see page28 of the instructions)

35 35 ( )

36Capital gains computed on a minimum tax basis included on line 25

36 Capital losses computed on a minimum tax basis included on line 25. Enter as a positive amount37

3738

Distributable net alternative minimum taxable income (DNAMTI). Combine lines 30 through 36.If zero or less, enter -0-

3839

Income required to be distributed currently (from Schedule B, line 9)39

40Other amounts paid, credited, or otherwise required to be distributed (from Schedule B, line 10)

4041

Total distributions. Add lines 38 and 39

42 42Tax-exempt income included on line 40 (other than amounts included on line 8)

43

Tentative income distribution deduction on a minimum tax basis. Subtract line 41 from line 4043

44

Tentative income distribution deduction on a minimum tax basis. Subtract line 31 from line 37.If zero or less, enter -0-

44 Income distribution deduction on a minimum tax basis. Enter the smaller of line 42 orline 43. Enter here and on line 26

41

3030 14,875

200

14,675

2,0002,000

2,000

14,675

2,000

Page 35



Estate of John R. Smith 10 0123456

Coin Collection 4-9-03 9-22-03 3,000 2,800

200

200 200

200

200 200

200 200

OMB No. 1545-0092SCHEDULE DCapital Gains and Losses(Form 1041)

� Attach to Form 1041, Form 5227, or Form 990-T. See the separateinstructions for Form 1041 (also for Form 5227 or Form 990-T, if applicable).


Employer identification numberName of estate or trust

Note: Form 5227 filers need to complete only Parts I and II.Short-Term Capital Gains and Losses—Assets Held One Year or Less

1

2Short-term capital gain or (loss) from Forms 4684, 6252, 6781, and 8824233 Net short-term gain or (loss) from partnerships, S corporations, and other estates or trusts

)Short-term capital loss carryover. Enter the amount, if any, from line 9 of the2002 Capital Loss Carryover Worksheet

4

Net short-term gain or (loss). Combine lines 1 through 4 in column (f). Enterhere and on line 14a below �

5a

5bLong-Term Capital Gains and Losses—Assets Held More Than One Year

6

7Long-term capital gain or (loss) from Forms 2439, 4684, 6252, 6781, and 88247

8Net long-term gain or (loss) from partnerships, S corporations, and otherestates or trusts

8

Capital gain distributions9 9

Gain from Form 4797, Part I10 10

1111

12

Long-term capital loss carryover. Enter the amount, if any, from line 14 of the2002 Capital Loss Carryover Worksheet

Net long-term gain or (loss). Combine lines 6 through 11 in column (f). Enterhere and on line 15a below �

1312

(2) Estate’sor trust’s

(1) Beneficiaries’(see page 33)

(3) TotalSummary of Parts I and II

15b

14a

15a Net long-term gain or (loss) (for the entire year)

Note: If line 16a, column (3), is a net gain, enter the gain on Form 1041, line 4. If lines 15a and 16a, column (2), are net gains, go to Part V, anddo not complete Part IV. If line 16a, column (3), is a net loss, complete Part IV and the Capital Loss Carryover Worksheet, as necessary.

For Paperwork Reduction Act Notice, see the Instructions for Form 1041. Schedule D (Form 1041) 2003Cat. No. 11376V

Part I

Part II

Part III

Combine lines 6 through 10 in column (g)

(c) Date sold(mo., day, yr.)

(b) Dateacquired

(mo., day, yr.)(d) Sales price (e) Cost or other basis

(see page 32)(a) Description of property(Example, 100 shares 7%

preferred of “Z” Co.)

(f) Gain or (Loss)for the entire year(col. (d) less col. (e))

(c) Date sold(mo., day, yr.)

(b) Dateacquired

(mo., day, yr.)(d) Sales price

(g) Post-May 5 gainor (loss)*

(see below)

(e) Cost or other basis(see page 32)

(a) Description of property(Example, 100 shares 7%

preferred of “Z” Co.)

(f) Gain or (Loss)for the entire year(col. (d) less col. (e))

Net short-term gain or (loss) (for the entire year)

Net long-term gain (post-May 5, 2003)Qualified 5-year gain

bc

15a

14a

(4

*Include in col. (g) all gains and losses from col. (f) from sales, exchanges, or conversions (including installment payments received) afterMay 5, 2003. However, do not include gain attributable to unrecaptured section 1250 gain or 28% rate gain or loss (see instr.).

)(

13

15dd

16aTotal net gain or (loss). Combine lines 14a and 15a �16a

Unrecaptured section 1250 gain (see line 18 of the worksheet on page 34)

15c

2003

(g) Post-May 5 gainor (loss)*

(see below)

Combine lines 1 through 3 in column (g) 5ab

e 28% rate gain or (loss) 15e

16bb Combine lines 14b(2) and 15b. If zero or less, enter -0-

Caution: Read the instructions before completing this part.

b(1) Net short-term gain (post-May 5, 2003)b(2) Net short-term loss (post-May 5, 2003)

14b(1)14b(2) )(

Page 36



Estate of John R. Smith123-00-6789 10 0123456

James Smith6407 Mayflower StreetJuneville, ME 00000

Charles R. Smith, Executor6406 Mayflower StreetJuneville, ME 00000

300100

1,600

2,000

2,000

100

OMB No. 1545-0092SCHEDULE K-1(Form 1041)

Beneficiary’s Share of Income, Deductions, Credits, etc.for the calendar year 2003, or fiscal year

beginning , 2003, ending , 20Department of the TreasuryInternal Revenue Service � Complete a separate Schedule K-1 for each beneficiary.Name of trust or decedent’s estate Amended K-1

Final K-1Estate’s or trust’s EIN �Beneficiary’s identifying number �

Fiduciary’s name, address, and ZIP codeBeneficiary’s name, address, and ZIP code

(c) Calendar year 2003 Form 1040 filers enterthe amounts in column (b) on:(b) Amount(a) Allocable share item

Form 1040, line 8a1 Interest

Form 1040, line 9aTotal ordinary dividends2a

Net short-term capital gain (entire year)3a Schedule D, line 5, column (f)

Net long-term capital gain (entire year) Schedule D, line 12, column (f)

Schedule E, Part III, column (f)Annuities, royalties, and other nonpassive incomebefore directly apportioned deductions

5a

Depreciationbc Depletion

Amortizationd6a Trade or business, rental real estate, and other rental income

before directly apportioned deductions (see instructions)DepreciationDepletionAmortization

Income for minimum tax purposes7Income for regular tax purposes (add lines 1, 2b, 3a,4a, 5a, and 6a)

8

Adjustment for minimum tax purposes (subtract line 8 from line 7)9 Form 6251, line 14

10 Estate tax deduction (including certain generation-skipping transfer taxes) Schedule A, line 27

Form 1040, line 44 or Schedule A, line 811 Foreign taxes

Adjustments and tax preference items (itemize):12a Accelerated depreciation Include on the applicable

line of Form 6251b DepletionAmortizationc

2004 Form 8801d Exclusion items

Deductions in the final year of trust or decedent’s estate:13a Excess deductions on termination (see instructions) Schedule A, line 22b Short-term capital loss carryover Schedule D, line 5, columns (f) and (g)

c Long-term capital loss carryoverSch. D, line 12, col. (f); line 5 of the wksht. for Sch. D,line 20; and line 16 of the wksht. for Sch. D, line 19

d Net operating loss (NOL) carryover for regular tax purposes Form 1040, line 21

Include on the applicable lineof the appropriate tax form

ef

Other (itemize):14Form 1040, line 62a Payments of estimated taxes credited to youForm 1040, line 8bb Tax-exempt interest

cd

Include on the applicable lineof the appropriate tax form

eSchedule K-1 (Form 1041) 2003For Paperwork Reduction Act Notice, see the Instructions for Form 1041. Cat. No. 11380D

bcd

g

NOL carryover for minimum tax purposes

Schedule E, Part III

Include on the applicable line of theappropriate tax form

Include on the applicable line of theappropriate tax form

See the instructions for Form 6251, line 27

�

�

�

�

�

14a14b14c14d14e

13a13b

13c13d13e13f13g

12a12b12c12d

1110

7

89

12a

3a

4a

5a5b5c5d

6a6b6c6d

4b4c

4a

c

28% rate gainLine 11 of the worksheet for Schedule D, line 19

Qualified 5-year gainb

( )

( )( )

Line 5 of the worksheet for Schedule D, line 35

Line 4 of the worksheet for Schedule D, line 204dd Unrecaptured section 1250 gain

2003

Schedule D, line 12, column (g)

4ee

Net long-term capital gain (post 5/5/2003)

2bQualified dividends

bForm 1040, line 9b

3bNet short-term capital gain (post 5/5/2003)b Schedule D, line 5, column (g)

Page 37



Schedule D Tax Worksheet Keep for Your Records

Complete this worksheet only if line 15d, column (2), or line 15e, column (2), of Schedule D is more than zero.Exception: Do not use this worksheet to figure the estate’s or trust’s tax if line 15a, column (2), or line 16a, column (2), of Schedule D or Form1041, line 22, is zero or less; instead, see the instructions for Schedule G, line 1a of Form 1041.

1. Enter the estate’s or trust’s taxable income from Form 1041, line 22 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1. 10,0252. Enter qualified dividends, if any, from Form 1041, line 2b(2) . . . . . . . . . . 2. 6293. Enter the amount from Form 4952, line 4g . . . . . . . . . . . . . 3.4. Enter the amount from Form 4952, line 4e* . . . . . . . . . . . . 4.5. Subtract line 4 from line 3. If zero or less, enter -0- . . . . . . . . . . . . . . . . 5. –0–6. Subtract line 5 from line 2. If zero or less, enter -0- . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6. 6297. Enter the smaller of line 15a, col. (2) or line 16a, col. (2) from Sch. D . . . . 7. 2008. Enter the smaller of line 3 or line 4 . . . . . . . . . . . . . . . . . . . . . . . . . . . 8. –0–9. Subtract line 8 from line 7. If zero or less, enter -0- . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9. 200

10. Add lines 6 and 9 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10. 82911. Add lines 15d, column (2) and 15e, column (2) from Schedule D . . . . . . . . . . . . . . . . . . . 11. 20012. Enter the smaller of line 9 or line 11 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12. 20013. Subtract line 12 from line 10. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13. 62914. Subtract line 13 from line 1. If zero or less, enter -0-. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14. 9,39615. Enter the smaller of line 1 or $1,900 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15. 1,90016. Enter the smaller of line 14 or line 15 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16. 1,90017. Subtract line 10 from line 1. If zero or less, enter -0- . . . . . . . . . . . . . . . . 17. 9,19618. Enter the larger of line 16 or line 17 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . � 18. 9,196

If lines 15 and 16 are the same, skip lines 19 through 28 and go to line 29. Otherwise,go to line 19.

19. Subtract line 16 from line 15 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . � 19.20. Add line 16b, column (2) (from Schedule D) and line 6 (above) . . . . . . . . . . . . . . . . . . . . 20.21. Enter the smaller of line 19 or line 20 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21.22. Multiply line 21 by 5% (.05) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22.

If lines 19 and 21 are the same, skip lines 23 through 28 and go to line 29. Otherwise, go to line 23.23. Subtract line 21 from line 19 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23.24. Enter the estate’s or trust’s allocable portion of qualified 5-year gain, if any, from Schedule

D, line 15c, column (2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24.25. Enter the smaller of line 23 or line 24 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25.26. Multiply line 25 by 8% (.08) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26.27. Subtract line 25 from line 23 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27.28. Multiply line 27 by 10% (.10) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28.

If lines 1 and 15 are the same, skip lines 29 through 47 and go to line 48. Otherwise, go to line 29.29. Enter the smaller of line 1 or line 13 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29. 62930. Enter the amount from line 19 (if line 19 is blank, enter -0-) . . . . . . . . . . . . . . . . . . . . . . . 30. –0–31. Subtract line 30 from line 29. If zero or less, enter -0- . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . � 31. 62932. Add line 16b, column (2) (from Schedule D) and line 6 (above) . . . . . . . . . . . . . . . . . . . . 32. 62933. Enter the amount from line 21 (if line 21 is blank, enter -0-) . . . . . . . . . . . . . . . . . . . . . . . 33. –0–34. Subtract line 33 from line 32 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34. 62935. Enter the smaller of line 31 or line 34 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35. 62936. Multiply line 35 by 15% (.15) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36. 9437. Subtract line 35 from line 31 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37. –0–38. Multiply line 37 by 20% (.20) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38. –0–

If Schedule D, line 15d, column (2) is zero or blank, skip lines 39 through 44 and go to line 45. Otherwise, go toline 39.

39. Enter the smaller of line 9 (above) or line 15d, col. (2) (from Schedule D) . . . . . . . . . . . . . 39.40. Add lines 10 and 18 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40.41. Enter the amount from line 1 above . . . . . . . . . . . . . . . . . . . . . . . . . . . 41.42. Subtract line 41 from line 40. If zero or less, enter -0- . . . . . . . . . . . . . . . . . . . . . . . . . . . 42.43. Subtract line 42 from line 39. If zero or less, enter -0- . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . � 43.44. Multiply line 43 by 25% (.25) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44.

If Schedule D, line 15e, column (2) is zero or blank, skip lines 45 through 47 and go to line 48. Otherwise, go toline 45.

45. Add lines 18, 19, 31, and 43 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45. 9,82546. Subtract line 45 from line 1 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46. 20047. Multiply line 46 by 28% (.28) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47. 5648. Figure the tax on the amount on line 18. Use the 2003 Tax Rate Schedule on page 21 . . . . . . . . . . . . . . . . . . . . . . . . 48. 2,36749. Add lines 22, 26, 28, 36, 38, 44, 47, and 48 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49. 2,51750. Figure the tax on the amount on line 1. Use 2003 Tax Rate Schedule on page 21 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50. 2,65451. Tax on all taxable income (including capital gains and qualified dividends). Enter the smaller of line 49 or line 50

here and on line 1a of Sch. G, Form 1041 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51. 2,517

*If applicable, enter instead the smaller amount entered on the dotted line next to line 4e of Form 4952.

Page 38



Table A. Checklist of Forms and Due Dates—For Executor, Administrator, or Personal Representative

Form No. Title Due Date

As soon as possible. The identification number mustSS–4 Application for Employer Identification Number be included in returns, statements, and other

documents.

56 Notice Concerning Fiduciary Relationship As soon as all necessary information is available.*

United States Estate (and Generation-Skipping Transfer) Tax706 9 months after date of decedent’s death.Return

6 months after cessation or disposition of706–A United States Additional Estate Tax Return special-use valuation property.

706–GS(D) Generation-Skipping Transfer Tax Return for Distributions See form instructions.

706–GS(D–1) Notification of Distribution From a Generation-Skipping Trust See form instructions.

706–GS(T) Generation-Skipping Transfer Tax Return for Terminations See form instructions.

United States Estate (and Generation-Skipping Transfer) Tax706–NA Return, Estate of nonresident not a citizen of the United 9 months after date of decedent’s death.

States

712 Life Insurance Statement Part I to be filed with estate tax return.

1040 U.S. Individual Income Tax Return Generally, April 15th of the year after death.

1040NR U.S. Nonresident Alien income Tax Return See form instructions.

1041 U.S. Income Tax Return for Estates and Trusts 15th day of 4th month after end of estate’s tax year.

U.S. Information Return—Trust Accumulation of Charitable1041–A April 15th.amounts

1041–T Allocation of Estimated Tax Payments to Beneficiaries 65th day after end of estate’s tax year.

Generally, April 15, June 15, Sept. 15, and Jan. 151041–ES Estimated Income Tax for Estates and Trusts for calendar-year filers.

Annual Withholding Tax Return for U.S. Source Income of1042 March 15th.Foreign Persons

1042–S Foreign Person’s U.S. Source Income Subject to Withholding March 15th.

Statement of Person Claiming Refund Due a Deceased1310 See form instructions.Taxpayer

Sufficiently early to permit IRS to consider theApplication for Extension of Time To File Certain Excise,2758 application and reply before the due date of FormIncome, Information, and other Returns 1041.

Sufficiently early to permit IRS to consider theApplication for Extension of Time To File a Return and/or Pay4768 application and reply before the estate tax formU.S. Estate (and Generation-Skipping Transfer) Taxes due date.

Request for Prompt Assessment under Internal Revenue As soon as possible after filing Form 1040 or Form4810 Code Section 6501(d) 1041.

Report of Cash Payments Over $10,000 Received in a Trade8300 15th day after the date of the transaction.or Business

8822 Change of Address As soon as the address is changed.

* A personal representative must report the termination of the estate, in writing, to the Internal Revenue Service. Form 56 can be used for this purpose.

Page 39



Table B. Worksheet To Reconcile Amounts Reported in Name of Decedent on Information Returns (FormsW–2, 1099–INT, 1099–DIV, etc.) (Keep for your records)

Name of Decedent Date of Death Decedent’s Social Security Number

Name of Personal Representative, Executor, or Administrator Estate’s Employer Identification Number (If Any)

A B C DAmount

Enter part of reportable on Part of column CSource Enter total amount amount in estate’s or that is income in

(list each payer) shown on column A beneficiary’s respect of ainformation return reportable on income tax decedent

decedent’s final return (column Areturn minus column B)

1. Wages

2. Interest income

3. Dividends

4. State income tax refund

5. Capital gains

6. Pension income

7. Rents, royalties

8. Taxes withheld*

9. Other items, such as social security,business and farm income or loss,unemployment compensation, etc.

* List each withholding agent (employer, etc.)

Page 40



• Search publications on-line by topic or know your filing status and the exactkeyword. whole dollar amount of your refund.How To Get Tax Help

• Figure your withholding allowances usingYou can get help with unresolved tax issues, our Form W-4 calculator. Evaluating the quality of our telephone serv-order free publications and forms, ask tax ques- ices. To ensure that IRS representatives give• Send us comments or request help bytions, and get more information from the IRS in

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The Taxpayer Advocate independently rep- Protocol at ftp.irs.gov. Walk-in. Many products and servicesresents your interests and concerns within theare available on a walk-in basis.IRS by protecting your rights and resolving Fax. You can get over 100 of the most

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To contact your Taxpayer Advocate: For help with transmission problems, call ernment offices, credit unions, and office703–487–4608.• Call the Taxpayer Advocate toll free at supply stores have a collection of products

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TTY/TDD user. Bulletins available for research purposes.• Ordering forms, instructions, and publica-• Visit the web site at www.irs.gov/advo- • Services. You can walk in to your localtions. Call 1–800–829–3676 to ordercate.

Taxpayer Assistance Center every busi-current-year forms, instructions, and publi-ness day to ask tax questions or get helpcations and prior-year forms and instruc-For more information, see Publication 1546,with a tax problem. An employee can ex-tions. You should receive your order withinThe Taxpayer Advocate Service of the IRS.plain IRS letters, request adjustments to10 days.

Free tax services. To find out what services your account, or help you set up a pay-• Asking tax questions. Call the IRS withare available, get Publication 910, Guide to Free ment plan. You can set up an appointmentyour tax questions at 1–800–829–1040.Tax Services. It contains a list of free tax publi- by calling your local Center and, at the

cations and an index of tax topics. It also de- • Solving problems. You can get prompt, leaving a message requestingscribes other free tax information services, face-to-face help solving tax problems Everyday Tax Solutions help. A represen-including tax education and assistance pro-every business day in IRS Taxpayer As- tative will call you back within 2 businessgrams and a list of TeleTax topics.sistance Centers. An employee can ex- days to schedule an in-person appoint-

Internet. You can access the IRS web plain IRS letters, request adjustments to ment at your convenience. To find thesite 24 hours a day, 7 days a week at your account, or help you set up a pay- number, go to www.irs.gov or look in thewww.irs.gov to: ment plan. Call your local Taxpayer Assis- phone book under “United States Govern-

tance Center for an appointment. To find ment, Internal Revenue Service.”the number, go to www.irs.gov or look in• E-file. Access commercial tax preparationthe phone book under “United States Gov-and e-file services available for free to eli- Mail. You can send your order forernment, Internal Revenue Service.”gible taxpayers. forms, instructions, and publications to

the Distribution Center nearest to you• TTY/TDD equipment. If you have access• Check the amount of advance child taxand receive a response within 10 workdays afterto TTY/TDD equipment, callcredit payments you received in 2003.your request is received. Use the address that1–800–829–4059 to ask tax or account

• Check the status of your 2003 refund. questions or to order forms and publica- applies to your part of the country.Click on “Where’s My Refund” and then on tions. • Western part of U.S.:“Go Get My Refund Status.” Be sure to

• TeleTax topics. Call 1–800–829–4477 to Western Area Distribution Centerwait at least 6 weeks from the date youlisten to pre-recorded messages covering Rancho Cordova, CA 95743–0001filed your return (3 weeks if you filed elec-various tax topics.tronically) and have your 2003 tax return • Central part of U.S.:

available because you will need to know • Refund information. If you would like to Central Area Distribution Centeryour filing status and the exact whole dol- check the status of your 2003 refund, call P.O. Box 8903lar amount of your refund. 1–800–829–4477 for automated refund Bloomington, IL 61702–8903

information and follow the recorded in-• Download forms, instructions, and publica- • Eastern part of U.S. and foreignstructions or call 1–800–829–1954. Betions.addresses:sure to wait at least 6 weeks from the date• Order IRS products on-line. Eastern Area Distribution Centeryou filed your return (3 weeks if you filedP.O. Box 85074electronically) and have your 2003 tax re-• See answers to frequently asked tax ques-Richmond, VA 23261–5074turn available because you will need totions.

Page 41



To help us develop a more useful index, please let us know if you have ideas for index entries.Index See “Comments and Suggestions” in the “Introduction” for the ways you can reach us.

Substantial valuationA E Gmisstatement . . . . . . . . 13Accelerated death Education savings Gift, property . . . . . . . . . . . 12

Personal representative:benefits . . . . . . . . . . . . 5, 12 account, Coverdell . . . . 5, 11Defined . . . . . . . . . . . . . . . 2Archer MSA . . . . . . . . . . . 5, 11 Estate: IDuties . . . . . . . . . . . . . . . . 2Income tax return . . . . . . . 14 Identification number, Fees received . . . . . . . . . . 3Insolvent . . . . . . . . . . . . . . 3B application . . . . . . . . . . . . 3 Penalty . . . . . . . . . . . . . . . 3Nonresident alien . . . . . . . 15

Basis: Income: Two or more . . . . . . . . . . 15Period of administration . . . 22Inherited property . . . . . . . 13 Community . . . . . . . . . . . . 5 Prompt assessment,Tax deduction . . . . . . . . . 11Joint interest property . . . . 13 Distributable net income . . 17 request . . . . . . . . . . . . . . 3Termination . . . . . . . . . . . 22Qualified joint interest . . . . 13 Distributed currently . . . . . 20Transfer of unused Public safety officers, deathInterest and dividend . . . . . . 5Beneficiary: deductions . . . . . . . . . . 22 benefits . . . . . . . . . . . . . 14Partnership, final return . . . . 4Basis of property . . . . . . . 13 Estate tax deduction . . . . . 11 S corporation . . . . . . . . . . . 5Character of

Estimated tax . . . . . . . . 19, 23 RSelf-employment . . . . . . . . 5distributions . . . . . . . . . 21Example: Refund:Excess deductions . . . . . . 22 Income in respect of

Comprehensive . . . . . . . . 23 File for decedent . . . . . . . . 4Income received . . . . . . . . 14 decedent . . . . . . . . . . . 8, 10Decedent’s final return . . . . 24 Military or terrorist actionLiability, estate’s income Income tax return of an estate:Estate’s tax return . . . . . . . 24 deaths . . . . . . . . . . . . . . 7tax . . . . . . . . . . . . . . . 15 Credits, tax, and

Exemption:Nonresident alien . . . . . . . 15 Release from liability . . . . . . 3payments . . . . . . . . . . . 19Estate’s tax return . . . . . . . 16Reporting distributions . . . . 21 Exemption and Return:Final return for decedent . . . 5Successor . . . . . . . . . . . . 23 deductions . . . . . . . . . . 16 Decedent’s final . . . . . . . . . 3

Expenses:Treatment of Filing requirements . . . . . . 14 Estate’s income tax . . . . . . 14Accrued . . . . . . . . . . . . . 17distributions . . . . . . . . . 20 Income to include . . . . . . . 15 Information . . . . . . . . . . . 15Administration . . . . . . . . . 17Unused loss carryovers . . . 22 Name, address, and Roth IRA . . . . . . . . . . . . . . 11Deductions in respect ofBequest: signature . . . . . . . . . . . 19

decedent . . . . . . . . . . . 11Defined . . . . . . . . . . . . . . 21 When and where to file . . . 19 SFuneral . . . . . . . . . . . . . . 19Property received . . . . . . . 12 Inherited IRAs . . . . . . . . . . 14Separate shares rule . . . . . 17Medical . . . . . . . . . . . . . 5, 19 Inherited property . . . . . . . 12Suggestions . . . . . . . . . . . . 2Extension to file Form InstallmentC Survivors:1041 . . . . . . . . . . . . . . . 19 obligations . . . . . . . . . . 9, 16Claim, credit or refund . . . . . 7 Income . . . . . . . . . . . . . . 14

Insurance . . . . . . . . . . . . . 12Combat zone . . . . . . . . . . . . 2 Tax benefits . . . . . . . . . . . . 8FComments . . . . . . . . . . . . . 2Fiduciary relationship . . . . . 3Coverdell education J TFiling requirements:savings account Joint return: Tax:Decedent’s final return . . . . . 4(ESA) . . . . . . . . . . . . . . 5, 11 Revoked by personal Alternative minimum:Estate’s tax return . . . . . . . 14Credit: representative . . . . . . . . . 4 Estate . . . . . . . . . . . . . 19Final return for decedent:Child tax . . . . . . . . . . . . . . 6 Who can file . . . . . . . . . . . 4 Individuals . . . . . . . . . . . 6Credits . . . . . . . . . . . . . . . 6Earned income . . . . . . . . . . 6 Benefits, survivors . . . . . . . 8Exemption andElderly or disabled . . . . . . . 6 L Estimated, estate . . . . . 19, 23deductions . . . . . . . . . . . 5Final return for decedent . . . 6 Payments, final return . . . . . 7Losses:Filing requirements . . . . . . . 4General business . . . . . . . . 6 Refund of income (claim) . . . 4Deduction on final return . . . 6Income to include . . . . . . . . 4

Self-employment . . . . . . . . 6Estate’s tax return . . . . . . . 16Joint return . . . . . . . . . . . . 4D Transfer of credit . . . . . . . 23Name, address, andDeath benefits: Terrorist action, tax relief . . . 7signature . . . . . . . . . . . . 7 M

Accelerated . . . . . . . . . . 5, 12 Terrorist victim . . . . . . . . . . 2Other taxes . . . . . . . . . . . . 6 Military or terrorist actions:Public safety officers . . . . . 14 Payments . . . . . . . . . . . . . 7 Claim for credit or refund . . . 7Decedent: When and where to file . . . . 7 Defined . . . . . . . . . . . . . . . 7 V

Final return . . . . . . . . . . . . 3 Who must file . . . . . . . . . . . 3 Tax forgiveness . . . . . . . . . 7 Valuation method:Income in respect of . . . . . . 8 Form: Inherited property . . . . . . . 13Deductions: 1040NR . . . . . . . . . . . . 4, 14 Special-use . . . . . . . . . . . 13NEstate tax . . . . . . . . . . . . 11 1041 . . . . . . . . . . . . . . . 14 Victims of terroristNotice of fiduciary relationship:In respect of decedent . . . . 11 1042 . . . . . . . . . . . . . . . 15 attacks . . . . . . . . . . . . . . . 2Form 56 . . . . . . . . . . . . . . 3Medical expenses . . . . . . . . 5 1310 . . . . . . . . . . . . . . . . 4

Termination . . . . . . . . . . . . 3Standard . . . . . . . . . . . . . . 5 4810 . . . . . . . . . . . . . . . . 3W56 . . . . . . . . . . . . . . . . . . 3Distributable net income . . . 17Widows and widowers, tax6251 . . . . . . . . . . . . . . . . 7Distributions: P

benefits . . . . . . . . . . . . . . 8706 . . . . . . . . . . . . . . . . 23Character . . . . . . . . . . . . 18 Partnership income . . . . . 4, 9SS–4 . . . . . . . . . . . . . . . . 3Deduction . . . . . . . . . . . . 17 Penalty: ■

Funeral expenses . . . . . . . 19Limit on deduction . . . . . . 18 Information returns . . . . . . 15Not treated as bequests . . . 22Property, in kind . . . . . . . . 18

Page 42



Tax Publications for Individual Taxpayers

General GuidesYour Rights as a TaxpayerYour Federal Income Tax (For

Individuals)

Farmer’s Tax Guide

Tax Guide for Small Business (ForIndividuals Who Use Schedule C orC-EZ)

Tax Calendars for 2004Highlights of 2003 Tax ChangesGuide to Free Tax Services

Specialized PublicationsArmed Forces’ Tax Guide

Fuel Tax Credits and RefundsTravel, Entertainment, Gift, and Car

ExpensesExemptions, Standard Deduction, and

Filing InformationMedical and Dental Expenses (Including

the Health Coverage Tax Credit)Child and Dependent Care ExpensesDivorced or Separated IndividualsTax Withholding and Estimated TaxForeign Tax Credit for IndividualsU.S. Government Civilian Employees

Stationed AbroadSocial Security and Other Information

for Members of the Clergy andReligious Workers

U.S. Tax Guide for AliensMoving ExpensesSelling Your HomeCredit for the Elderly or the DisabledTaxable and Nontaxable IncomeCharitable ContributionsResidential Rental Property

Commonly Used Tax Forms

Miscellaneous DeductionsTax Information for First-Time

Homeowners

Reporting Tip IncomeSelf-Employment Tax

Installment SalesPartnershipsSales and Other Dispositions of AssetsCasualties, Disasters, and TheftsInvestment Income and ExpensesBasis of AssetsRecordkeeping for IndividualsOlder Americans’ Tax GuideCommunity PropertyExamination of Returns, Appeal Rights,

and Claims for RefundSurvivors, Executors, and

AdministratorsDetermining the Value of Donated

PropertyMutual Fund DistributionsTax Guide for Individuals With Income

From U.S. Possessions

Pension and Annuity IncomeCasualty, Disaster, and Theft Loss

Workbook (Personal-Use Property)Business Use of Your Home (Including

Use by Daycare Providers)Individual Retirement Arrangements

(IRAs)Tax Highlights for U.S. Citizens and

Residents Going AbroadWhat You Should Know About the IRS

Collection Process

Earned Income Credit (EIC)Tax Guide to U.S. Civil Service

Retirement Benefits

Tax Highlights for Persons withDisabilities

Bankruptcy Tax GuideDirect SellersSocial Security and Equivalent

Railroad Retirement BenefitsHow Do I Adjust My Tax Withholding?Passive Activity and At-Risk RulesHousehold Employer’s Tax GuideTax Rules for Children and

DependentsHome Mortgage Interest DeductionHow To Depreciate PropertyPractice Before the IRS and

Power of AttorneyIntroduction to Estate and Gift TaxesThe IRS Will Figure Your Tax

Per Diem RatesReporting Cash Payments of Over

$10,000 (Received in a Trade orBusiness)

The Taxpayer Advocate Serviceof the IRS

Derechos del ContribuyenteCómo Preparar la Declaración de

Impuesto Federal

Crédito por Ingreso del TrabajoEnglish-Spanish Glossary of Words

and Phrases Used in PublicationsIssued by the Internal RevenueService

U.S. Tax Treaties

Spanish Language Publications

Tax Highlights for CommercialFishermen

910

595

553509

334

225

171

3

378463

501

502

503504505514516

517

519521523524525526527529530

531533

537

544547550551552554

541

555556

559

561

564570

575584

587

590

593

594

596721

901

907

908

915

919925926929

946

911

936

950

1542

967

1544

1546

596SP

1SP

850

579SP

Comprendiendo el Proceso de Cobro594SP

947

Tax Benefits for Adoption968

Informe de Pagos en Efectivo enExceso de $10,000 (Recibidos enuna Ocupación o Negocio)

1544SP

See How To Get Tax Help for a variety of ways to get forms, including by computer, fax, phone,and mail. For fax orders only, use the catalog number when ordering.

U.S. Individual Income Tax ReturnItemized Deductions & Interest and

Ordinary DividendsProfit or Loss From BusinessNet Profit From BusinessCapital Gains and Losses

Supplemental Income and LossEarned Income CreditProfit or Loss From Farming

Credit for the Elderly or the Disabled

Income Tax Return for Single and Joint Filers With No Dependents

Self-Employment TaxU.S. Individual Income Tax Return

Interest and Ordinary Dividends forForm 1040A Filers

Child and Dependent CareExpenses for Form 1040A Filers

Credit for the Elderly or the Disabled for Form 1040A Filers

Estimated Tax for IndividualsAmended U.S. Individual Income Tax Return

Unreimbursed Employee BusinessExpenses

Underpayment of Estimated Tax byIndividuals, Estates, and Trusts

Power of Attorney and Declaration ofRepresentative

Child and Dependent Care Expenses

Moving ExpensesDepreciation and AmortizationApplication for Automatic Extension of Time

To File U.S. Individual Income Tax ReturnInvestment Interest Expense DeductionAdditional Taxes on Qualified Plans (Including

IRAs) and Other Tax-Favored AccountsAlternative Minimum Tax—IndividualsNoncash Charitable Contributions

Change of AddressExpenses for Business Use of Your Home

Nondeductible IRAsPassive Activity Loss Limitations

1040Sch A&B

Sch CSch C-EZSch D

Sch ESch EICSch FSch H Household Employment Taxes

Sch RSch SE

1040EZ

1040ASch 1

Sch 2

Sch 3

1040-ES1040X

2106 Employee Business Expenses2106-EZ

2210

24412848

390345624868

49525329

6251828385828606

88228829

Form Number and TitleCatalogNumber

Sch J Farm Income Averaging

Additional Child Tax Credit8812

Education Credits8863

CatalogNumber

1170020604

11744

1186211980

124901290613141

1317713329

1360062299637046396610644120811323225379

11320

Form Number and Title

11330

113341437411338

113441333911346121872551311359113581132712075

10749

12064

11329

1134011360

See How To Get Tax Help for a variety of ways to get publications, includingby computer, phone, and mail.

970 Tax Benefits for Education971 Innocent Spouse Relief

Sch D-1 Continuation Sheet for Schedule D 10424

972 Child Tax Credit

Tax Guide for U.S. Citizens andResidents Aliens Abroad

54

Net Operating Losses (NOLs) forIndividuals, Estates, and Trusts

536

Tax-Sheltered Annuity Plans (403(b)Plans)

571

Medical Savings Accounts (MSAs)969

Installment Agreement Request9465 14842

Page 43

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